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The importance of pension trustee responsibilities

Gillian McCue examines a Pensions Ombudsman ruling against Hampshire County Council for failing to carry out proper due diligence before transferring a person's benefits to a retirement scheme which turned out to be a scam.

Anyone can become a victim of a pension scam, and often the impact of those hit can be life-changing.
On average, victims lose £91,000 each to fraudsters, with some having lost over £1m. Once the money is gone, it is unlikely to be recovered.

Pension fund trustees and administrators play an important role to educate and protect investors. Understanding what the warning signs are and how to avoid getting caught up in a scam is essential.

But often, trustees can be targeted and mistakenly invest members’ savings into a scam scheme, and the Pensions Ombudsman can come down hard on those in a position of responsibility. This makes it imperative that trustees carry out detailed due diligence when reinvesting in new schemes.

Even when individuals making transfers believe they have carried out all necessary steps, informed the individual in question and have signed authority from them, the responsibility is still firmly in their court. This is what Hampshire County Council discovered recently.

What happened to Hampshire County Council?

An individual who we will refer to as Mrs H, successfully won a Pensions Ombudsman ruling against Hampshire Country Council for failing to carry out proper due diligence before transferring her benefits to The Focusplay Retirement Benefits Scheme, which turned out to be a scam scheme.

This is despite doing so on Mrs H’s request and having a signed declaration stating: “I have read the leaflet from the Pensions Advisory Service entitled ‘Predators stalk your pension’… I understand that it is my responsibility to ensure the benefits the transfer value buys in the new scheme are suitable for me and my family and that no responsibility for this rests with the [Hampshire Pension Fund],… I will have no further benefits from the [Hampshire Pension Fund] in respect of the rights to which the transfer value relates.”

The Pensions Ombudsman decided that there was maladministration on the part of the council because they:

  • were not aware of the discretion to refuse the transfer request (because it was not a “statutory” request on the part of Mrs H – on the basis she did not have any “earnings” within the meaning of the transfer legislation);
  • did not carry out due diligence on the scam arrangement;
  • did not engage directly with Mrs H regarding the concerns it should have had with her transfer request, had the council properly assessed it.

The Ombudsman accepted evidence that Mrs H was not financially aware.

A bit about the background:

  • Mrs H became eligible to join the LGPS in 1989 but did not actually join it until 2002. She became a deferred member in 2007 when her local government employment ended.
  • In 2013, by which time Mrs H was aged 59, looking after her elderly mother and living on state benefits, she received a cold call from Pension Matters Associates Ltd (PMA). Mrs H allowed PMA to review her pension arrangements.
  • In August 2013, PMA contacted the council seeking information about her pension benefits. PMA’s letterhead did not specify that it was a regulated financial adviser.
  • The council gave PMA the information and sent Mrs H a copy of the Pensions Regulator’s action pack on pension fraud (the Scorpion warning).
  • In September 2013, Mrs H made a request for her benefits to be transferred from her LGPS fund to the Focusplay Retirement Benefits Scheme. Mrs H completed a signed declaration outlined above.

Was it clear?

No, not necessarily. It was clear the Ombudsman expected the council to take a strong approach on due diligence and advise Mrs H on the risks and activity, and stop her, even if this was against her requests.

Reasoning behind the Ombudsman’s decision:

  • Mrs H did not have an absolute right to transfer her benefits.
  • Mrs H had been transferring from one occupational pension scheme to another. Under the relevant legislation, she could only take a cash equivalent transfer value from an occupational pension scheme to acquire transfer credits in the new arrangement. Transfer credits were defined in the legislation as rights allowed to an “earner”. The earnings did not need to come from the scheme’s principal employer, but there had to be some earnings from employment.
  • Mrs H had had no employment earnings. She had not been an “earner” and was unable to obtain transfer credits in the Scheme. Instead, the council had a discretion whether to allow a transfer.
  • As Mrs H was already a deferred pensioner, having left employment, and was aged 59, it should have been clear to the council that there might be an earnings problem. It should therefore have made enquiries of Mrs H before deciding whether to allow the transfer, but it failed to do so.

The Determination highlights the importance of detailed due diligence on the part of trustees of pension schemes. Trustees requiring more time in order to carry out due diligence can request an extension of the time limit for processing even a statutory transfer request. Helpfully, The Pensions Regulator has published updated (11 November 2019) regulatory guidance.

There is also a pensions industry voluntary code of good practice on combating pension scams, which was published on 16 March 2015 at www.combatingpensionscams.org.uk.

If you need guidance or help around protecting from potential scams, our pensions team would be happy to chat more.

In the information provided to the council from PMA, it was stated that Focusplay Limited was incorporated in 1999, its principal activity was steel stockholding in Warrington and its pension scheme was a contracted-in defined contribution occupational pension scheme registered with HMRC for tax relief purposes. The council noted that the Focusplay scheme was only set up in May 2013 but also, “…There is no evidence of actual illegal activity and the member has declared on the discharge form".

Gillian McCue is a Senior Associate at Blake Morgan. She can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it. or telephone at 029 2068 6148.