Mrs G (PO-26616): pension liberation - Ombudsman orders reinstatement of member's benefits after failure to carry out proper due diligence

The Pensions Ombudsman has upheld a complaint by a deferred member of the Teachers' Pension Scheme who argued that the administrator had failed to carry out sufficient due diligence when processing her transfer request in 2015. As a result, she suffered the loss of her benefits within the scheme.

The transfer was conducted after the administrator concluded that the receiving scheme was registered with HMRC and that none of the features of a scam or pension liberation listed in the Regulator's guidance at the time were present. The member had also requested a transfer of two other pensions. However, these requests were refused due to concerns about the receiving scheme.

Shortly after her transfer, the Regulator appointed an independent trustee to the receiving scheme. At this point, the member complained that the Teachers’ Scheme had failed to carry out sufficient due diligence. The Ombudsman found that the administrator had failed to conduct sufficient due diligence or identify clear red flags regarding the receiving scheme, which amounted to serious maladministration. In addition, the receiving scheme was sponsored by a geographically distant company for which the member did not work, which ought to have prompted additional questioning. Had the administrator put in place proper processes to identify potential scam arrangements and warned the member of the risk of transferring, the member would have withdrawn her transfer request.

The Ombudsman directed the administrator to reinstate the member's benefits in the Teachers’ Scheme or arrange for equivalent benefits to be provided. The administrator was also ordered to pay the member £1,000 for the severe distress and inconvenience caused.

Comment

Since the time of the transfer in this complaint, the legal requirements have changed and a higher level of protection for members now applies. However, the Ombudsman noted that even if the member did not have a statutory right to transfer, the trustees are still required to carry out proper due diligence. The Ombudsman expects a considerable amount of work to be done to ensure members' pension funds are protected when they are transferred.

By contrast, in the case of Mrs Y (CAS-29927-D2K7), another decision in relation to an historic transfer, the determination followed the approach of considering whether the scheme acted in line with industry practice at the time of the transfer. In the case of Mrs Y, the employer provided the transfer value in November 2013, together with the Regulator's "Scorpion" leaflet and a letter referring her to the fraud section of the Regulator's website.

The decision in Mrs G will still be of concern to trustees. They will need to be increasingly wary of members’ transfer requests as the Ombudsman seems frequently to side with the member in such cases, and order the reinstatement of scammed benefits. There is also an element of historic cases being judged with the benefit of hindsight. Trustees may be interested to read PASA’s most recent issue of DC Governance Watch, published on February 9, 2023, which looks at actions to be taken in compliance with the transfer regulations. This, along with the Regulator’s current transfer guidance (last updated on January 12, 2023), may be useful when trustees are faced with difficult decisions relating to discretionary transfers.