Trustees receive positive sign from ombudsman on scam checks

Mr S, a member of the National Health Service Superannuation Scheme (Scotland), complained to the ombudsman that the Scottish Public Pensions Agency did not carry out sufficient due diligence checks when he applied to transfer out his benefits to the failed Capita Oak Pension Scheme.

He argued that the SPPA should have noted that the sponsoring employer, RP Redplant, was bogus and did not exist, and it was not registered in the UK but in Cyprus as a dormant company. Mr S was not an employee of the company, nor did the firm have any employees, and there were no directors of the trustee company, Imperial trustees Services, at the time of the transfer.

Contrary to similar previous decisions, the complaint was not upheld against the SPPA.

Trustees and administrators do need to be ultra-cautious now and increasingly from mid-2013 onwards. This case just reflects what was sufficient in 2012 and early 2013

Penny Cogher, Irwin Mitchell

Pensions Ombudsman Anthony Arter says the pension scheme “did provide Mr S with a warning about the possibility of pension liberation, and the checks it carried out on the Capita Oak Pension Scheme were in accordance with standard practice at the time”.

Timing is all

The determination shows the crucial importance of timing, according to Penny Cogher, partner at Irwin Mitchell.

“Mr S asked for a transfer out to be made from NHS Pensions in 2012 and early 2013, before the Pensions Regulator and HM Revenue & Customs had really got their act together in terms of advising pension trustees and administrators on how to respond to transfer requests to non-legitimate pension schemes.

“TPR had not come out with the pension scam Scorpion leaflet, and HMRC had not got around to delisting dubious pension schemes from its qualifying recognised overseas pension scheme list.”

Ms Cogher notes that this meant that in Mr S's case, the SPPA just ran a straightforward check as to whether the receiving scheme had HMRC status.

She adds: “The Pensions Ombudsman determined that this was sufficient at that time. Trustees and administrators do need to be ultra-cautious now and increasingly from mid-2013 onwards. This case just reflects what was sufficient in 2012 and early 2013.”

Arshad Khan, senior counsel at Sackers, agrees with this opinion. He notes that the case “shows how important the facts and circumstances are for each of the numerous cases on this subject, which the Pensions Ombudsman has decided or is still yet to decide”.

He says: “It is a rebalancing decision when contrasted and compared with the Northumbria Police Authority (2018) and the Hampshire County Council (2019) decisions, which in very broadly similar cases [the Pensions Ombudsman] found against the scheme and ordered the reinstatement of benefits for the member.”

Malcolm McLean, senior consultant at Barnett Waddingham, adds: “The ombudsman has rejected any suggestion that he is being inconsistent with an earlier determination on another case.

“This is in line with the argument that all ombudsmen, in my experience, have used that many cases may appear to have similar features, but are not exactly the same, and turn therefore on their own facts in the determination of the outcome.

“This is why it has been so difficult to cite precedents on ombudsmen determinations over the years, and remains so now.”

Devastating consequences for members

Nevertheless, the consequences of a scam for a member can be devastating. To mitigate the damage both to members and the scheme, Margaret Snowdon, chairwoman of the Pension Scams Industry Group, encourages trustees to follow the latest version of the PSIG voluntary code.

This document incorporates all areas of the regulatory framework on pension scams – TPR, the Pensions Ombudsman, the Financial Conduct Authority and HMRC – along with practical guidance from professionals working at the “coalface”.

She advocates talking to the member before any transfer, but notes “it takes real courage to refuse a transfer of rights”.

John Reeve, director at Cosan Consulting, agrees: “Trustees and administrators are stuck between the member’s right to transfer and helping them avoid scams. However, sensible questioning and help to members will avoid some future scams.”

Despite all the warnings, members are still falling victim to pension scams. Stephen Scholefield, partner at Pinsent Masons, says: “Not only is this damaging to the individuals concerned, but it can reflect badly on trustees and administrators if their processes are not up to scratch, as well as undermining confidence in saving.

“As scams develop, it is important that trustees remain vigilant and review their – or their administrator’s – approach to ensure it remains fit for purpose.”