The Pensions Ombudsman has ordered a local authority scheme to reinstate a member who transferred out in 2013 despite reading a scams warning leaflet. Should schemes worry that their past decisions will be tested against today’s standards, or was a leaflet never enough? 

 

Trustees and administrators have to navigate carefully between allowing members choice and protecting them from scams, and since a Pensions Ombudsman ruling on Northumbria Police, they know scam warnings are essential. But the latest determination in a similar case shows that even after sending scam warning leaflets, funds can end up having to pay redress. 

 

 

In late August, the Pensions Ombudsman ordered Hampshire County Council to pay damages of £500 and reinstate the accrued benefits of a former employee, Mrs H, having transferred the cash equivalent transfer value to Focusplay Retirement Benefits Scheme in 2013 – a scheme whose main trustee, Roger Bessent, was charged with fraud by the Pensions Regulator in 2018. 

 

The council had received a request to transfer from Mrs H’s adviser and noticed that Focusplay, which was registered with HMRC, had only been set up recently. This raised a red flag, but the council found that the risk of pension liberation was reduced because Mrs H was over 55 at the time, and that it had no choice but to allow the transfer. 

 

“The large amount of additional documentation sent by Focusplay would indicate that they realise that they arouse suspicions. However, they have been very clear in indicating that they are a contracted in defined contribution arrangement and the member will lose the right to a minimum benefit in respect of their section 9(2B) rights. There is no evidence of actual illegal activity and the member has declared on the discharge form that they have read the ‘Predators stalk your pension' leaflet, so on this basis the transfer must proceed,” the council’s pensions department noted at the time. 

 

But ombudsman Antony Arter said the conclusion that “the transfer must proceed” was wrong, saying that since February 2013, requirements had ramped up.

 

At that time, the regulator had issued a two-page warning note and a more detailed information leaflet for administrators and pension providers to provide to members who request a transfer, as well as an action pack for pension professionals which included a checklist and examples of what to look out for. 

 

Arter also rejected the council’s argument that the member was entitled to a statutory transfer, saying that the law limits the right to transfer to ‘earners’; in the eyes of the ombudsman Mrs H was not an earner because she was on state benefits, and the transfer was therefore discretionary, he said. 

 

In addition, from the geographical distance between Mrs H’s address and that of Focusplay – an occupational scheme – and its associated employer, the council should have known that she was not working there, the ombudsman explained. Geographical distance is one of the things on the regulator’s scams checklist. 

 

More controversially, he expected that the scheme should have come to the conclusion that – based on the fact that she only decided to join the pension scheme several years into her employment with the council – Mrs H “was not financially aware”.

 

Given these warning signs, the council should have contacted Mrs H about her transfer request, he argued – and claimed that “on the balance of probability” she would have changed her mind had it done so. 

 

 

The case has caused consternation in some quarters. Hugh Nolan, director at Spence & Partners – Spence’s sister firm Dalriada Trustees was appointed to Focusplay by the regulator in 2017 – said it was worrying that members, the Pensions Regulator and HMRC, which had registered the scheme, are “absolved of all responsibility” while Hampshire Pension Fund is being asked to make good a loss which, in Nolan’s view, it did not cause.  

 

“The ruling hung on a pretty esoteric issue, that the scheme could have worked out it is a scam; but then so could the member,” he said. 

 

Arter’s view that Mrs H was not financially astute is “horribly condescending”, said Nolan. “It may well be true, but I think for a scheme to make that sort of judgment is... ridiculous."  

 

Equally, schemes should not be expected to ascertain whether a firm is an employer based on geographical location, he said, noting that his own employer is based hundreds of miles away, and addresses can change: “What's to stop them moving to that job or even commuting a long distance?” 

 

Nolan considers the ombudsman’s “an unfair retrospective judgment” in which “TPO is setting the bar higher than any standard at the time”. 

 

 

Hampshire Pension Fund is not alone in having to deal with the fallout from Focusplay. Arshad Khan, an associate director at law firm Sackers, said some of his clients have had to contend with members whose benefits were transferred to Focusplay and are now seeking redress or asking questions. 

 

Khan draws parallels with an earlier ombudsman determination on a policeman’s pension, who was reinstated after a transfer. The Hampshire case is the first such case since that involving Northumbria Police Authority, which made headlines at the time. “This, almost a year later, is sort of part two,” he said.  

 

However, in the Hampshire County Council case, the ombudsman goes further; the Northumbria police complaint partly hinged on the fact that the member was not sent a Scorpion leaflet with a warning. “But here... [Mrs H] admitted she had that leaflet but still it was not enough to protect the trustee,” said Khan. 

    

Despite this, he does not agree that the ombudsman looked at the situation with the benefit of hindsight, because the scheme had raised concerns internally at the time.  

 

“It doesn't need hindsight to say that if you have a nag about the receiving scheme you tell the member before you hit the button,” he said. “I don’t think that’s a novelty, but the extent of the due diligence certainly has changed.” 

 

However, he agrees with Nolan that schemes should not have to judge how financially astute someone is: "To say, ‘So-and-so is more sophisticated than the other [member], we treat them with different standards’, it seems a bit artificial.” 

 

Claire Ryan