UK Pension fraud: trustee duties on transfer

Background facts

• Mr D was an active member of the BSPS from March 2004 to January 2008. He then became a deferred member.
• In the course of 2013, Mr D requested (through different third parties) a transfer value quotation three times. Transfer value quotations were issued in response to each request but it appeared Mr D then took no further action.
• In 2014, Mr D received an unsolicited approach from a different unregulated introducer, offering him a free pension review. The introducer requested a transfer value quotation on Mr D’s behalf. The BSPS administrator sent the introducer a transfer value pack, including a copy of the Pensions Regulator (TPR)’s Scorpion Leaflet.
• On 11 August 2014, the SSAS provider requested a transfer of Mr D’s benefits on his behalf. Alongside the transfer request, the BSPS was sent:
  • Confirmation that the SSAS provider was able to accept the transfer;
  • Notification that the SSAS had been registered with HMRC on 5 August 2014;
  • A copy of TPR’s Scorpion Leaflet, confirmed as having been read by Mr D and signed and dated by him;
  • Confirmation that Mr D was employed by the sponsoring employer of the SSAS;
  • A copy of the SSAS trust deed and rules, which appointed Mr D as sole trustee;
  • A letter from a solicitors’ firm, confirming that it had drafted the trust deed and rules for the SASS provider and that they were appropriate for use in relation to single-member SSASs;
  • A transfer request letter signed and dated by Mr D, confirming that: he was aware of the issues relating to pension liberation; he had carefully considered his transfer request; and he had not been offered any cash or other incentive to transfer;
  • A transfer value discharge form signed by Mr D on 11 August 2014, authorising the trustee to pay the transfer value to the SSAS;
  • A member declaration signed by Mr D, stating that he had read and understood the terms of TPR’s Pensions Liberation Fraud leaflet, and confirming that the transfer value was being paid to a registered pension arrangement; and
  • An employment agreement dated 24 July 2014 and signed by Mr D, showing that: the registered office of Mr D’s employer was his home address; he was the managing director of the employer; and he was to work from home.
• On 1 September 2014, the trustee confirmed to Mr D that his all his benefits under the BSPS had been transferred.
• It appeared that Mr D’s SSAS had invested his funds in a fractional share of an overseas resort hotel room. TPO’s Adjudicator later commented that it was likely that Mr D would have lost most, if not all, of the value of his pension.

Mr D’s complaint

• A claims management firm (MRL) complained on Mr D’s behalf that the Trustee should have:
  • Assessed Mr D’s transfer request carefully;
  • Identified various warning signs indicated in the Scorpion Leaflet; and
  • Contacted Mr D directly to inform him of the warning signs and to establish his understanding of the receiving scheme.
• The complaint was rejected at both stages of the scheme’s internal dispute resolution procedure (IDRP).
• A TPO Adjudicator also concluded that no further action was required by the Trustee. Mr D did not accept the Adjudicator’s opinion, so his complaint was considered by TPO.

Pensions Ombudsman’s decision

• TPO concluded that there was no legislative, common law or regulatory obligation on the Trustee to carry out the due diligence that MRL argued was required.
• In addition, the Trustee had not voluntarily assumed a responsibility to carry out the due diligence listed in the Action Pack or to warn Mr D if red flags emerged.
• Some details of TPO’s reasoning are given below.

Relevance to Mr D of increasing protections for members against pension scams

• TPR noted that in February 2013, TPR had produced:
  • A leaflet for members (the “Scorpion Leaflet”); and
  • An Action Pack, aimed at pension professionals.
• TPR issued an updated version of the Action Pack on 24 July 2014. MRL argued that the Trustee had not undertaken the proactive steps expected in the 2014 version (such as speaking to Mr D). TPO considered that:
  • As Mr D’s transfer request was dated 11 August 2014 and the transfer was paid on 1 September 2014, it would have been reasonable and appropriate for the Trustee to have still considered the 2013 version of the Action Pack; and
  • Such continued use fell within the grace period which TPO’s office has historically allowed for trustees and administrators to put in place new processes and procedures.
• The timing of a transfer request affected the legal obligations of the transferring trustees. TPO noted in particular that Mr D’s transfer request predated:
  • The requirement from April 2015 that trustees check that a member has received “appropriate independent advice” before transferring a defined benefit (DB) transfer value of more than £30,000; and
  • The introduction of the “transfer conditions” requirements applicable to transfers from 30 November 2021.

Was there a statutory or regulatory obligation to follow the due diligence checklist in the Action Pack?

• It appeared to be common ground between the parties in Mr D’s case that the transfer was a statutory transfer from one occupational pension scheme to another.
• TPO considered the requirements for a statutory transfer (such as that the member should receive transfer credits in the receiving scheme) and that there was no argument that the requirements had not been met.
• TPO noted that on a statutory transfer, the transferring trustee is required to carry out the transfer within (for a DB transfer) six months of the guarantee date. TPR had power to extend the deadline in prescribed circumstances but these did not include undertaking additional due diligence as suggested by MRL.

Legal status of the Scorpion Leaflet and Action Pack

• TPO concluded that there was no legislative or regulatory obligation on a transferring trustee of an occupational scheme either to:
  • Follow the due diligence Checklist, or other requests contained in the Action Pack; or
  • Provide members with the Scorpion Leaflet.
• In reaching this conclusion, TPO noted that:
  • Legislation governing transfers and disclosure do not impose obligations on transferring trustees in relation to the Scorpion Leaflet or Action Pack; and
  • TPR had not issued the contents of the Action Pack as a “code of practice”.

Did the Trustee owe a duty of care to Mr D?

• TPO considered whether the Trustee might owe a duty of care under common law or equity to carry out due diligence as suggested in the Action Pack and to inform Mr D, and concluded that it did not.
• In particular, it was a well-established principle that a common law duty of care will not usually arise where this would hinder performance of a statutory obligation. In the context of statutory pension transfers, imposing a duty to carry out further due diligence beyond that required by legislation would inhibit transferring trustees from meeting their statutory transfer obligations.
• TPO also discounted arguments based on the “best interests of the beneficiary”, noting that the Courts have moved instead towards the “proper purposes” principle when considering trustees’ duties. The purpose of a scheme is to pay benefits in accordance with scheme rules and overriding legislation, not to act as a “holistic financial or retirement solution for the member”.

What about a voluntary assumption of a duty?

• TPO concluded that the Action Pack invited trustees to review the Checklist but it was the Trustee’s choice whether to do so or not.
• TPO commented that if trustees voluntarily decided to carry out the due diligence suggested by the Action Pack and informed the member of this:
  • It might be that a duty of care would arise to carry out the due diligence with reasonable skill (if it was also reasonably foreseeable that the member would reasonably rely on the trustees’ due diligence); but
  • The member would still have to meet the other requirements for a claim in negligence for economic loss; and
  • In many previous cases, members’ claims have failed on causation, as it was found that the member would have transferred anyway even if a warning had been given.
• In Mr D’s case, TPO found that the Trustee had made no representation to him to suggest that it was carrying out due diligence beyond that required to check that SSAS met the statutory conditions for a receiving scheme.
• The Trustee had therefore not voluntarily assumed a duty of care to Mr D.

Applicability of determination in Mr D to other transfers

• TPO emphasised that his determination in Mr D’s case concerned a statutory transfer between two occupational pension schemes. Different factors would be relevant to:
  • Transfers involving personal pension schemes, where the pension provider would fall within the requirements of the FCA Handbook; and
  • Non-statutory transfers carried out under power in a scheme’s rules.

Authored by Jill Clucas.