Ombudsman’s police ruling highlights trustee duty of care

The ruling could set a precedent for a new duty on pension schemes to inform their members about the risks of scams and unsuitable transfers, according to experts.

The complainant, Mr N, had complained that Northumbria Police transferred his fund to a new scheme without carrying out adequate checks or giving him sufficient warning about scams. Mr N was concerned that his entire pension fund may have been lost or misappropriated.

Nearly a third of adults missed the most obvious pension scams in a Pensions and Lifetime Savings Association survey earlier this year, which tested people’s understanding of scammers’ tactics.

Northumbria Police failed to conduct adequate checks

The ombudsman decided that Northumbria Police failed to conduct adequate checks and enquiries in relation to the new pension scheme, The London Quantum Retirement Benefit Scheme, and failed “to send Mr N the Pensions Regulator’s transfer fraud warning leaflet” – also known as the scorpion warning.

It also concluded that Northumbria Police failed to engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it.

If it were not for Northumbria Police’s maladministration, “Mr N would not have proceeded with this transfer and suffered a loss”, the ombudsman stated.

It has ruled that Northumbria Police should reinstate Mr N’s accrued benefits in the scheme, or provide equivalent benefits, adjusting for any revaluation that has arisen since the transfer.

The police force would be entitled to recover from Mr N the amount of his pension fund that the trustees of the new pension scheme are able to retrieve for him, if any.

It was also asked to pay Mr N £1,000 “to reflect the materially significant distress and inconvenience that Mr N has suffered as a result of the appropriate checks not having been made by it, and the recommended warning information not having been given directly to Mr N”.

A spokesperson for Northumbria Police said: “The Force respects the decision made by the Pensions Ombudsman and has adhered to its findings.”

Schemes must follow due diligence

Margaret Snowdon, chair of the Pensions Administration Standards Association, said the ruling will serve as a reminder to schemes of the importance of anti-scam measures.

“While this case rests on the individual details, which may or may not be found elsewhere, it is vitally important that schemes follow good due diligence to help prevent transfers to unauthorised arrangements,” Snowdon said.

When it comes to pension scams, “the big issue is where responsibility lies”, said Sir Steve Webb, director of policy at Royal London. “For me, what this ruling says is that the duties on schemes appear to go rather further than we may have thought in the past.”

Webb said schemes should be doing due diligence on the receiving scheme. “You might say, ‘Well, that’s the member’s job,’ but actually schemes and administrators understand pensions – members don’t,” he noted.

He added: "You do have a responsibility to check where the member’s money is going.”

Could this ruling open the floodgates?

The ruling raises the prospect that other people with similar complaints might go to the ombudsman for compensation.   

But Ian Neale, director at Aries Insight, disputed the idea that the ruling “opens the floodgates”.

“Ombudsman judgments don’t have the force of precedence that court cases do,” he said.

He highlighted the importance of the dates in the determination. The Pensions Regulator issued its action pack, flagging up a fraud awareness leaflet for members, in 2013.

The transfer was completed in 2014, with Mr N receiving confirmation that the transfer payment of £112,077.66 had been made from the Police Pension Scheme to London Quantum.

“A lot turned on the fact that the application to transfer was made after the regulator issued the scorpion leaflet,” Neale noted.

Mark Smith, partner at law firm Taylor Wessing, also emphasised the importance of the transfer happening after the regulator brought out its scorpion fraud information.

There have been several cases of this kind that have been brought before the ombudsman over the years.

In historic cases, before the regulator published its clear scorpion information in 2013, “it was hard to say that trustees were under any obligation to be warning members about these scams”, said Smith.

He noted that since 2013 and industry practice changed, “[the ombudsman] perceives that pension schemes should be doing more to draw members’ attention to these risks”.