The Pensions Ombudsman has directed Northumbria Police Authority (the ‘Authority’) to reinstate benefits in the Police Pension Scheme (the ‘PPS’) because it failed to warn one of its officers (Mr N) about pension scams before he transferred his benefits.
Mr N submitted a transfer request to the Authority which instructed them to transfer his accrued benefits in the PPS to the London Quantum Retirement Benefit Scheme (the ‘Quantum Scheme’).
A transfer payment of £112,007.66 was made on 15 August 2014 from the PPS to the Quantum Scheme. The Quantum Scheme is now being investigated for pension liberation fraud.
Mr N complained that the Authority had failed to provide him with sufficient warning about the risk of pension scams and that it had transferred his funds without having conducted adequate checks in relation to the Quantum Scheme.
The red flags
The Pensions Regulator had recommended in 2013 that members of pension schemes who were transferring their savings should be sent a leaflet warning them about the risk of pension scams.
The Regulator warned individuals to look out for approaches being made out of the blue, pushy advisers, companies offering a “loan” or “cashback” and any references to “loopholes” or new investment techniques.
Although a link to the Regulator’s leaflet had been available on the Authority’s internal website, a copy was not sent directly to Mr N when he requested a transfer value.
The Pensions Ombudsman noted that the Authority had ignored a number of features of the Quantum Scheme which other trustees or managers might have considered to be potential red flags. These included the fact that the Quantum Scheme was sponsored by a dormant company which did not employ Mr N and that both Mr N and the Quantum Scheme were located geographically far from the sponsoring company.
The complaint was upheld against the Authority because it failed:
- to conduct adequate checks and enquiries in relation to Mr N’s new pension scheme;
- to send Mr N the Pensions Regulator’s warning leaflet; and
- to engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it.
The Authority was ordered to reinstate Mr N’s accrued benefits in the PPS and Mr N was awarded £1,000 to reflect the significant distress and inconvenience that he had suffered.
Lessons for trustees & administrators
Trustees and scheme administrators should take note of the Ombudsman’s findings. This is a landmark decision and, although the Ombudsman is not bound by precedent and treats each case on its merits, it highlights the risk to which trustees are exposed if they do not carry out a thorough assessment of members’ transfer requests.
This case related to a public sector pension scheme and involved a finding against the Police Authority. In a private sector scheme, most of the issues would have been addressed by the scheme’s administrators. Trustees should ensure that they are aware of their administrators’ procedures for dealing with transfer requests and that the administrators are carrying out proper investigations and providing all necessary information to members.