Even the police can be duped: why the risk of pension scams should be flagged to members

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In a recent determination (Mr N PO-12763) the Pensions Ombudsman has directed Northumbria Police Authority (the ‘Authority’) to reinstate the accrued benefits of one of its officers (Mr N) in the Police Pension Scheme (the ‘Scheme’) because it failed to warn him about pension scams.

The facts

Mr N is an employee of the Authority and was a member of the Scheme. In late 2012 Mr N made an application to stop paying contributions to the Scheme, which was approved, on the basis that he was considering reducing, and eventually did reduce, his working hours. On the cessation of his contributions Mr N became a deferred member.

Mr N was concerned that his pension in the Scheme would not be accessible until he retired at age 60; that the Scheme’s normal pension age would increase to 65 before he had the opportunity to retire; and that he would not remain employed to that age. He therefore sought advice on the possibility of transferring his Scheme pension to another provider which would permit him access to his funds at age 55.

In November 2013, Mr N submitted a transfer request to the Scheme and an application form to join the London Quantum Retirement Benefit Scheme (the ‘London Scheme’). The transfer payment of £112,007.66 was made on 15 August 2014 from the Scheme to the London Scheme and the funds were invested in November 2014. The London Scheme is now being investigated for pensions liberation fraud.

The complaint

After discovering that his entire pension fund may have been lost or misappropriated, Mr N complained that the Authority transferred his pension into the London Scheme without having conducted adequate checks and failed to provide him with sufficient warnings regarding scams as required by the Pensions Regulator.

The red flags

In February 2013, The Pensions Regulator had recommended that members of pension schemes who were transferring their savings should be sent a leaflet warning them about scams. Although Northumbria Police had included a link to the leaflet on its own internal website, it had not sent a copy of it directly to Mr N before it processed his request.

The determination

The Pensions Ombudsman stated that February 2013, the time at which the information leaflet was published by the Pensions Regulator, marked a point of considerable change in the level of due diligence expected of trustees, managers and administrators when considering transfer requests.

It was noted that the Authority had ignored a number of features which other schemes would have considered potential ‘red flags’ including the fact that the London Scheme was sponsored by a dormant company that was registered at an address far removed from the London Scheme and that Mr N was not employed by the sponsor and was located geographically far from it.

The complaint was upheld against the Authority because it failed:

  1. to conduct adequate checks and enquiries in relation to Mr N’s new pension scheme;
  2. to send Mr N the Pensions Regulator’s transfer fraud warning leaflet; and
  3. to engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it.

The Authority was ordered to reinstate Mr N’s accrued benefits in the Scheme and Mr N was awarded £1000 to reflect the materially significant distress and inconvenience suffered.

A step in the right direction?

This ruling shows that pension schemes have important duties to protect members. Not only should the risk of scams be flagged to members but thorough checks should be undertaken if a transfer request is being processed. However, the ruling also raises the prospect that other people with similar complaints might go to the Pensions Ombudsman for compensation.

Surely though, any decision that reduces the risk of members being scammed and losing their retirement savings is a step in the right direction, even if it places more responsibility on scheme trustees, service providers and its advisers?

[1] Mr N PO-12763

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