The Pensions Ombudsman has made a few slightly controversial rulings over the last 12 months, finding maladministration by schemes relative to an extremely high standard and with the benefit of hindsight. His recent ruling on the Hampshire County Council transfer case follows these precedents but goes even further.
In the latest case, Mrs H transferred to a scam pension scheme and the Local Government Pension Scheme (Hampshire Pension Fund) paid the transfer value as she requested and is now being forced to pay her benefits too. It’s great for the member that she will still get her pension benefits but the scheme has to pay twice, though the Ombudsman has kindly said that Hampshire County Council can keep any money it manages to get back from the scammers.
The background to the case is that the scheme paid a transfer of £26,234 to a scheme that had only been set up fairly recently. The member involved was approaching her Normal Retirement Age and lived hundreds of miles away from the sponsoring employer of the new occupational scheme to which she was transferring. Incidentally, the member had also declined to join the Hampshire Pension Fund originally and then joined much later. The Ombudsman took this as evidence that she was not financially astute and, therefore, argued that the trustees should have taken extra care to protect her. The scheme did send her the Scorpion literature and she signed a form declaring that she had read the leaflet and understood it was entirely her own responsibility to make sure the benefits in her new scheme were appropriate.
In fairness to the Ombudsman, the Hampshire Pension Fund seemed to believe, incorrectly, that the member had a right to take the transfer and they had no ability to stop her. In fact, she may have had a right to a transfer but she did not have a right to transfer to that particular scheme, as she was not (and never had been) employed by the sponsoring employer. That is a pretty esoteric point, and one that the transferring scheme did not know, but I can see that they might have checked further if they had realised they did have some discretion after all.
Nevertheless, the transferring scheme did warn her about scams and highlighted her personal responsibility. She chose the receiving scheme (albeit with dubious ‘advice’) and requested the transfer be made. The Ombudsman says that Hampshire should have realised that it was a scam as they didn’t check whether she worked for the new employer, but apparently doesn’t mind the member choosing an occupational scheme that she hadn’t worked for. The Ombudsman says that the recent approval by HMRC was another red flag, rather than placing any responsibility on HMRC (or pension regulations generally) for approving a scam scheme. The Ombudsman criticised the scheme for thinking it was obliged to make the payment, but has repeatedly made clear that it will uphold complaints wherever schemes do not fully comply with their legal obligations within the statutory timeframes, even where there is a strong suspicion and evidence that the receiving scheme is a scam. Successive Governments have declined to introduce legislation to give trustees an option to withhold transfers in suspicious cases but trustees are still expected to police the issue, with little or no support from the Ombudsman or legislature.
I have had conversations with members who have requested transfers to schemes that look suspicious and these members can be upset, frustrated, confused, aggressive and even abusive. I have, however, always eventually been able to persuade them that the trustees were trying to protect their best interests, leading the members to withdraw their requests (even if they later transferred somewhere else).
I thought that was a good example of how we go above and beyond the basic call of duty to administer our schemes in the best possible way. But now it seems that we are only doing what is actually needed to protect ourselves against future claims for compensation. I feel sorry for schemes that haven’t always gone to such lengths and I thank goodness that we set our own standards high enough to stand the test of time.
I am all in favour of high administration standards across the pensions industry. However, I just can’t get completely on board with an Ombudsman who sometimes seems to see trustees as an easy target for compensation, despite their best efforts to look after their members even when they don’t get much help from the rules to do so.