21 January 2020 | Comment | Article by Ria Coleman
A recent Pensions Ombudsman decision has highlighted the considerable change in the level of due diligence expected of pension schemes since the implementation of what is known as the ‘Scorpion’ campaign that was launched in February 2013 by The Pensions Regulator.
The Pensions Regulator campaign leaflet is commonly referred to as the 'Scorpion' campaign due to its inclusion of an image of a scorpion, and the tagline 'predators stalk your pension'. It is aimed to raise awareness of the risks of being drawn into pension liberation scams, which at the time of the release of the campaign totalled £495 million.
In 2013, Mrs H received a call out of the blue from a company that persuaded her to transfer her local authority pension over to a new occupational scheme.
That same company then arranged for Mrs H’s Hampshire Pension Fund benefits of £26,234 to be transferred to Focusplay Retirement Benefits, a newly formed occupational pension scheme.
Whilst Hampshire Pension Fund noted that Focusplay had only been set up in May of the same year and that Mrs H would lose all rights to even a minimum benefit if she transferred out, they concluded that the transfer had to go ahead. It appears they were satisfied that Mrs H had received and read the 'Scorpion' pension liberation/scam leaflet, and there was no illegal activity that they could discern.
Mrs H transferred her benefits and lost her pension pot. Focusplay was in fact a scam and was later shut down by the High Court in the public interest.
Mrs H made a complaint to The Pensions Ombudsman that the Hampshire Council had failed to carry out proper due diligence before it transferred her benefits from the Hampshire Pension Fund into the Focusplay scheme. The Ombudsman considered the case and concluded that the Council had mistakenly thought that it could not refuse to implement the transfer as Mrs H had a statutory right to request it.
In fact, Mrs H had no statutory right to transfer under the relevant legislation which requires that an individual may only take a cash equivalent transfer value from an occupational pension scheme provided they are an 'earner'. At the time, Mrs H was in receipt of no earnings due to the fact that she was looking after her sick and elderly mother, and so could not be regarded as an 'earner'. As a result, the decision to allow the transfer was subject to the pension fund's discretion.
The Pensions Ombudsman found that they had failed to ascertain the correct legal position and had they done so, they would have been alert to a number of red flags such as:
- The receiving scheme was hundreds of miles away
- The receiving scheme was recently established
- Mrs H was not financially astute and had been cold called
The Council were directed by the Pensions Ombudsman to reinstate Mrs H’s accrued benefits and to pay her £500 for the distress and inconvenience.
In summary, this decision highlights the level of due diligence expected of pension schemes over and above sending pension holders the 'Scorpion' campaign leaflet, and the necessity for pension schemes to engage directly with the individual and to make further enquiries; especially where the circumstances are indicative of a scam.
If you think you may have transferred your pension into a scam, get in touch with Hugh James’ expert Financial Mis-Selling team today.