Pension scam claims over scheme transfers tipped to increase

Out-Law News | 04 Oct 2019 | 10:56 am | 2 min. read

A recent decision by the Pensions Ombudsman could spur an increase in the number of claims lodged over pension scheme transfers that fall victim to scammers, an expert in pensions litigation has said.

Ben Fairhead of Pinsent Masons, the law firm behind Out-Law, said the decision has provided further clarity on the standards of due diligence pension scheme operators will be expected to have met to help scheme members seeking to transfer their pension benefits to other schemes from losing their savings to fraudsters through such transfers.

Fairhead was commenting after ombudsman Anthony Arter ordered Hampshire County Council to reinstate the benefits that a saver had accrued in its local government pension scheme in light of concerns that her pension savings have been lost or misappropriated.

Arter ordered the reinstatement of benefits after finding that Hampshire County Council was responsible for maladministration when it proceeded with the transfer of a saver's pension benefits to what the ombudsman said transpired to be a "scam pension arrangement".

According to the decision, Hampshire County Council issued a so-called 'Scorpion warning' about the fraudsters that seek to take advantage of pension transfers to the saver, who was referred to as 'Mrs H'. The local authority further obtained Mrs H's signature to a declaration concerning the transfer. Arter said, though, that the council should have done more to seek to prevent the transfer going ahead.

The ombudsman said Hampshire County Council had operated on the mistaken belief that Mrs H had a statutory right to transfer her pension savings out of the Hampshire fund to the scheme which it has subsequently accepted was a scam arrangement, and that as a result it had no discretion to refuse the transfer.

Arter said Hampshire County Council in fact did have "discretion whether or not to implement the requested transfer".

The local authority should have recognised that there might have been an "earnings problem" with the transfer request and should have "made enquires of Mrs H" before carrying on with the transfer, Arter said.

"The council's failure to recognise the correct legal position and, as a consequence, its failure to conduct further due diligence before making the transfer amounts to maladministration," the ombudsman said.

There were "several 'red flags'" that the council missed, Arter said.

He said: "Mrs H was approaching her normal retirement age and was living on the south coast, but the employer running the scheme was a steel stockholding company and was based several hundred miles away. Also, the scheme was recently established. In that situation, one would have expected the council to make an attempt, by phone or email, to explain its concerns to Mrs H and to point out the possibility that the scheme could be a scam. Unfortunately, it failed to contact her at all and quickly processed the transfer request as thought it had no choice in the matter."

Mrs H would likely have changed her mind about proceeding with the transfer had the council acted as it should have, Arter said.

Ben Fairhead of Pinsent Masons said: "This decision arguably raises the bar again for ceding schemes following the Mr N determination that caused some alarm in the industry last year.  It shows that, in looking at transfers made in late 2013, providers and trustees are going to be expected to have done more than merely pass on the regulator’s 'scorpion' materials and obtained a signed discharge form if they are to avoid the risk of a maladministration finding. This was much more than happened in the Mr N case but still deemed not good enough."

"This determination might well encourage more activity from claims management companies in pursuing claims on behalf of pension scam victims whose transfers went ahead without any red flags being drawn to their attention," Fairhead said. "Such claims are not always well-founded though – and the rather unusual facts around Mrs H’s earnings position, leading the ombudsman to conclude there was no statutory right to a transfer, were clearly significant in this case."