For individuals who get taken in by pensions fraudsters the consequences can be devastating. 253 victims reported to Action Fraud in 2017 that they had lost an average of £91,000 to pension scammers. The FCA and Pensions Regulator have recently launched a television advertising campaign to alert the public to the risk of losing their retirement savings.

So, to what extent are pension scheme trustees required to protect members from making potentially disastrous decisions, and what are the consequences if they allow transfers to fraudsters? It appears that the goal posts are shifting and trustees are being expected to do more to help prevent frauds, without there being any change in the law.

Between 2015 and 2018, the Pensions Ombudsman investigated seven complaints in relation to transfers to the Capita Oak Pension Scheme of transfer values between £18,643 and £151,277, which were feared lost. None of the complaints against the trustees, administrators or insurers involved in making the transfers were substantially upheld. A common feature of the determinations was that the transfers had been made in line with best practice and guidance at the time.

In contrast, the Pensions Ombudsman has recently found a police authority guilty of maladministration in relation to the payment of a transfer value of £124,000 from the Police Pension Scheme to the London Quantum Retirement Benefit Scheme. The Pensions Ombudsman has directed the Authority to reinstate the complainant’s benefits in the scheme, despite their protestations that it was not possible to do so and ordered them to pay £1,000 for significant distress and inconvenience.

What went wrong? Well, in contrast to the Capita Oak cases, it seems that the Pensions Ombudsman did not think current best practice and guidance had been followed in relation to the transfer. In particular, the Pensions Ombudsman decided that the Authority failed to:

• Conduct adequate checks and enquiries into the receiving scheme;
• Send the member the Pensions Regulator’s transfer fraud warning;
• Engage directly with the member about the concerns it should have had with the transfer.

Notably, it wasn’t a legal requirement to send TPR’s fraud warning and the failings were all concerned with what the Pensions Ombudsman considers to have been industry best practice and guidance at the time of the transfer. The case illustrates again that the ill-defined concept of maladministration is, at least in the Pensions Ombudsman’s eyes, about more than adherence with legal requirements. It did also have something to say about the statutory transfer process however. The Authority had argued that it was entitled to a statutory discharge but the Pensions Ombudsman dismissed this on the basis that the Authority was not entitled to rely on section 99(1) of the Pension Schemes Act 1993 – it could not say it had “done what is needed to carry out what the member requires” because what the member required could only be determined after the appropriate due diligence had been carried out on the receiving scheme, and any warnings or concerns identified brought to the attention of the member. That view of the statutory transfer process seems rather onerous on trustees, who aren’t after all members’ advisers.

Helpfully, the PLSA has issued an updated version of its code of good practice on combating pension scams, which provides guidance on the due diligence trustees and providers should carry out to protect individuals against fraudsters.

Max Ballad, Legal Director
This article was published in Actuarial Post