Out-Law Analysis 2 min. read

Pensions disputes: Ombudsman rejects inadequate due diligence claim


The UK Pensions Ombudsman has rejected a complaint that a scheme administrator did not carry out adequate due diligence when processing a request for a pension transfer.

It comes after Mr H, a deferred member of a defined contribution occupational scheme, complained that he lost his savings when he was cold-called by an unknown company that recommended he transfer to another scheme. Mr H requested overseas discharge forms from the third-party scheme administrators in September 2015.

In December 2015, he contacted the scheme administrators again asking for transfer paperwork, which they provided, along with a link to information on pension scams and the recommendation to seek financial advice. Mr H signed the member declaration without dating it and sent it to the receiving scheme. On 14 March 2016, the scheme administrators received a transfer request for Mr H's funds, with accompanying information about the receiving scheme The transfer was completed on 23 March 2016.

In January 2020, Mr H complained to the scheme administrator that it had not carried out adequate due diligence in respect of his pension transfer. Had the administrator done so, Mr H said, it would have stopped the transfer from proceeding and he would not have lost his pension funds. While he was aware he requested and signed the transfer paperwork, this took place after the cold call. He said he was not in the right frame of mind to make financial decisions just after he had ended his employment. He also thought he was moving to a lesser known, but recognised, scheme which had the same or better benefits.

Mr H believed that the scheme administrators should have identified warning signs related to the receiving scheme, and checked Mr H’s employment status and whether he had received independent financial advice.

The scheme administrator stated that the receiving scheme was registered with the appropriate authorities and that it was not responsible for employment checks. Financial advice was not required for the transfer and they had provided Mr H with information about the risks associated with a transfer. Mr H escalated his complaint and emphasised an alleged lack of due diligence from the scheme administrators, referring to previous Pensions Ombudsman cases in which members had lost money in transfers to the receiving scheme.

The Pensions Ombudsman did not uphold the complaint, finding instead that the administrator had fulfilled its due diligence obligations with the information it held at the time. The ombudsman noted that this case could not be viewed with the benefit of hindsight, but rather the circumstances and specific facts at the time of the transfer. 

The transfer due diligence guidance applicable at the time was the Pensions Regulator’s 2013 guidance and the Pension Scams Industry Group’s 2015 Code of Good Practice. The ombudsman said that it “is not a statutory code, with the mandatory obligations that entails” and “trustees and providers are entitled to decide upon their own, proportionate due diligence processes”.

Although Mr H said he had not received the anti-scam ‘Scorpion’ leaflet, he had signed a member declaration accepting that he had read and understood it. The ombudsman was satisfied that the leaflet would, more likely than not, have been sent. Mr H did not raise with the administrator the fact that he had been cold-called – a key warning sign highlighted in the Scorpion leaflet. In those circumstances, the ombudsman was satisfied that the actions of the administrator were reasonable.

Although Mr H pointed to some cases that had been upheld by the previous ombudsman, the new ombudsman did not agree that they were identical cases and noted differences in factors and timing. In particular, two of the previous cases pre-dated the 2015 Code of Good Practice, and the industry’s two-stage due diligence process was not then established.

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