In a case relating to a transfer out of the Police Pension Scheme that turned out to be a scam, the Pensions Ombudsman has ordered the relevant police authority to reinstate the member in the Police Pension Scheme.
Background
Mr N was a member of the Police Pension Scheme but opted out in December 2012. He was concerned that the pension age under the scheme might be raised, so took advice (from “several firms”) and took a transfer value of £112,000 from the scheme in 2014.
In 2015 he became worried that the receiving scheme involved more investment risk than he was comfortable with and he complained initially to the Financial Ombudsman about his financial adviser. The Financial Ombudsman found that no regulated activity had occurred, so rejected the complaint (in 2014 it was not a legal requirement to obtain financial advice prior to transfer).
Mr N then complained to the Northumbria Police Authority (the Authority that had employed him) and was again unsuccessful, so escalated his complaint to the Pensions Ombudsman.
The Authority’s defence was that it had:
- established that the receiving scheme was registered with HMRC and
- checked that no cash incentive or time-limited offer was involved.
It argued also that Mr N would have transferred even if the Authority had provided a direct warning and that it did not have a duty to protect scheme members from their own bad decisions.
The Ombudsman’s determination
The Ombudsman upheld Mr N’s complaint, noting that the Authority had failed:
- to conduct adequate due diligence in relation to the receiving scheme (such as obtaining a copy of the Trust Deed & Rules),
- to issue the “scorpion leaflet” (that warns members about pension transfer fraud) to Mr N and
- to engage directly with Mr N about the dangers of pension scams.
The Ombudsman ordered the Authority to reinstate Mr N in the Police Pension Scheme or to provide equivalent benefits through another arrangement, though allowing the Authority to claim from Mr N any funds recovered from the receiving scheme. It required the Authority also to pay £1,000 to Mr N in respect of distress and inconvenience.
Comment
Although Ombudsman cases do not create precedent in the same way that court cases do, it is clear that the Ombudsman expects trustees to conduct adequte due diligence in relation to schemes to which members wish to transfer and to engage with members to ensure that they understand the risk of pensions fraud. The cost of reinstating members who have transferred out coudl be considerable.