MoD reinstates member of the Armed Forces pension scheme after scam

The Ministry of Defence (MoD) has been directed by the Pensions Ombudsman to reinstate a former member of the Armed Forces Pension Scheme and pay him £2,000 for the severe distress and inconvenience caused, after wrongly allowing him to transfer to a pension scam known as the Capita Oak Pension Scheme.

Mr S was an active member of the Armed Forces Pension Scheme (AFPS) from 1988 to 2011, after which he became a deferred member. It appears that at some point in 2012 Mr S was approached by a representative of Capita Oak and persuaded to transfer his pension into the scheme, which turned out to be a scam arrangement.

The AFPS received Mr S’s transfer request in January 2013 and the MoD provided a transfer value that same month. During that time, the MoD correctly checked that the Capita Oak Pension Scheme was registered with HM Revenue and Customs as part of its due diligence checks. However, the transfer was then delayed for several months as Mr S had not provided the MoD with sufficient proof of identification.

In the meantime, the Pensions Regulator published updated guidance on scams and transfers in February 2013. This guidance warned pension operators to look out for certain ‘red flags’ in pension transfer requests that might indicate the existence of pension liberation scams.

The Pensions Ombudsman found that the MoD failed to implement this guidance prior to proceeding with Mr S’s transfer request in September 2013. It was not until November 2013 that the MoD changed its procedures to address the updated guidance.

In August 2013, Mr S provided the MoD with proof that he was receiving jobseeker’s allowance. This fact proved central to the Pensions Ombudsman’s determination as explained below.

The Capita Oak Pension Scheme subsequently failed and Mr S appealed to the Pensions Ombudsman, alleging that the MoD had failed to carry out due diligence checks that would have prevented the transfer.

The Pensions Ombudsman’s determination

Following a hearing on 27 May 2021, the Pensions Ombudsman, Mr Anthony Arter, upheld Mr S’s complaint.

Mr Arter found that Mr S did not have a statutory right to a transfer because he was not an ‘earner’ as required by the rules of the Capita Oak Scheme given that he was in receipt of jobseeker’s allowance.

Further, it was found that the AFPS did not have a separate discretionary transfer right and so the transfer was ‘invalid, constituted maladministration and did not discharge the MoD’s liability under the relevant transfer legislation’. On that basis Mr Arter directed the MoD to reinstate Mr S’s accrued benefits as if he had not transferred.

Mr Arter also found that there was maladministration by the MoD in executing the transfer process by failing to assess the request in accordance with the Pensions Regulator’s February 2013 guidance and to warn Mr S of the concerns that the MoD should have identified about the Capita Oak scheme. However, Mr Arter concluded that, on the facts of the case, Mr S would have continued with the transfer even if the MoD had raised these concerns with him. In arriving at this finding Mr Arter considered the oral evidence that Mr S gave at the hearing which suggested that he was in highly reliant upon the Capita Oak representatives and paid little attention to the documents that he signed prior to the transfer.

To read the Pension Ombudsman’s detailed determination, please see PO-11134.pdf (pensions-ombudsman.org.uk)

Possible implications for others affected

This decision has potential implications for the many thousands of armed forces personal who transferred out of the AFPS prior to April 2016 when they were outlawed by Pension Schemes Act 2015.

Whilst the decision in this case rests on its own facts and critically the information that the MoD had that Mr S was in receipt of jobseeker’s allowance it does raise concerns about the MoD’s failure to promptly implement the February 2013 guidance and identify a scam arrangement.