![Global rules on foreign direct investment](https://www.nortonrosefulbright.com/-/media/images/nrf/nrfweb/knowledge/publications/us_24355_legal-update--fdi-alert.jpeg?w=265&revision=a5124a65-abf9-40e4-8e96-9df39ffdb212&revision=5250068427347387904&hash=96B456347C3246E5649838DF281C5F5D)
Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | January 2022
The Pensions Ombudsman has found that someone in receipt of jobseeker’s allowance in 2013 could not have met the “earner” condition of the transfer regulations (as they then stood) and therefore didn’t have a statutory transfer right. The transferring scheme is now obliged to reinstate the member who lost his pension after transferring out to a scam arrangement.
The Ombudsman also considered how long a scheme could reasonably delay before improving its due diligence as recommended by new industry guidance.
In line with recent cases, the Ombudsman confirmed that he would usually allow schemes a one-month grace period to update their processes but emphasised that these cases are very fact-specific. On the facts of this case, the transferring scheme could not benefit from the grace period.
Background
A member of the Armed Forces Pension Scheme (the Scheme), Mr S, was cold-called and persuaded to transfer his benefits into the Capita Oak Pension Scheme, which was a scam arrangement.
The Ministry of Defence (MoD), which runs the Scheme, received Mr S’s request to transfer in January 2013. This timing is significant because a month later, in February 2013, the Pensions Regulator issued its so-called “Scorpion guidance”, which recommended significantly enhancing transferring schemes’ due diligence processes.
In March 2013 the MoD completed its due diligence on Mr S’s transfer request, but did this in line with its existing processes and not the Scorpion guidance.
There was then a six month delay while the MoD waited for Mr S to provide proof of identification, but in early September 2013 the MoD gave final approval and made the transfer. It says it only became aware of the Scorpion guidance the following month, in late October, and enhanced its due diligence process in November for future transfers.
Pensions Ombudsman’s decision
The Ombudsman decided that the member did not qualify for a statutory transfer in September 2013 because he was not an “earner” at that time and therefore did not meet all of the conditions in the transfer laws. The MoD had seen evidence before the transfer showing he was in receipt of jobseeker’s allowance but had failed to spot the point.
As the Scheme did not allow for discretionary (non-statutory) transfers, Mr S’s transfer could not have been valid. The Scheme would now have to reinstate him as if he had never transferred out.
In addition, there was maladministration by the MoD in the way it conducted the transfer process because its due diligence should have been in line with the Scorpion guidance. Although the initial due diligence was completed in March 2013 (i.e. within one month of the Scorpion guidance being published), the Ombudsman felt that the substantive decision to transfer was only taken in September 2013 after further checks. The MoD should have revisited the position under the new guidance at that point and couldn’t benefit from the one-month grace period the Ombudsman normally allows.
So Mr S was awarded an additional £2,000 for severe distress and inconvenience. This was despite the Ombudsman finding that on the balance of probabilities Mr S would have gone ahead with the transfer, even if the MoD had enhanced its due diligence and appropriately warned him.
Comment
This case has a fairly unusual fact pattern in that Mr S was out of work at the time of the transfer and the Scheme didn’t allow for non-statutory transfers. Nevertheless the decision may worry any schemes which in the past did not routinely check a member’s employment status before approving a transfer.It remains to be seen whether the Ombudsman’s view of who is an “earner” for the purposes of the transfer laws will be challenged. This has previously happened (in the Hughes case in a slightly different context).
It is helpful that the decision confirms the availability of the one-month grace period in principle, but with the Ombudsman emphasising that everything turns on the exact facts we are likely to see more member challenges to 2013 transfers.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
Artificial intelligence (AI) raises many intellectual property (IP) issues.
Publication
Taking place across three webinars, our team of experienced lawyers and consultants, along with industry professionals and regulators, explore the latest ESG developments and trends within financial services regulation. This series takes a cross jurisdictional perspective, covering ESG financial services regulation and trends from across the globe.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023