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4 May 2021 | Comment | Article by Neil Stockdale

Recent Pensions Ombudsman decision sheds light on pension administrator’s due diligence requirements

A recent Pensions Ombudsman decision has shed light on the level of due diligence expected of pension schemes since the implementation of 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 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 January 2020 we wrote about the decision issued by the Pensions Ombudsman in the case of Mrs H. This highlighted the level of due diligence expected of pension schemes over and above sending pension holders the ‘Scorpion’ campaign leaflet, and which emphasised the necessity for pension schemes to engage directly with an individual. Read the full article here.

The Pensions Ombudsman appears to have taken a less stringent approach in the case of Mr R based upon the facts of that case.

In 2014, Mr R received an unsolicited approach from a company, who persuaded him to transfer his pension over to a small, self-administered pension scheme, to be able to take advantage of wider investment opportunities. The administrator of the new pension scheme wrote to Legal & General (‘L&G’) enclosing Mr R’s signed request to transfer from his L&G Pension plan to the new scheme. Mr R had also signed a letter confirming he was aware of pension liberation issues and had considered these before signing the request.

L&G wrote to Mr R, expressing several concerns. Their concerns were that Mr R may not have received advice from a financial adviser authorised by the FCA, that the scheme’s trust deed stated that a proportion of the investment may be made outside of the UK, and that any overseas investment would not be protected by the Financial Services Compensation Scheme. Despite L&G’s warnings, Mr R signed a form of discharge and a declaration confirming he still wished to proceed with the transfer, and declared and confirmed that he:-

  1. Was exercising his statutory right to transfer;
  2. Had read and understood the scorpion warning;
  3. Discharged L&G from liability upon making the transfer payment;
  4. Was aware of the risks, and would not hold L&G responsible for any losses or fees, or seek any compensation;
  5. Had received financial advice in relation to the transfer; and
  6. Acknowledged that L&G, in making the transfer payment, was not endorsing the suitability of the receiving scheme or any of its investments.

In September of that year, the transfer was completed and most of the money was subsequently invested in hotel accommodation in Cape Verde.

In July 2016, Mr R watched a BBC Panorama television programme featuring investment scams involving properties in Cape Verde. Mr R naturally became concerned that he had been a victim of a scam and instructed a claims management company to complain to the Pensions Ombudsman, claiming that L&G had failed to provide Mr R with sufficient information and warnings about the transfer.

The Pensions Ombudsman concluded that no further action was required by L&G. They found that L&G did provide Mr R with sufficient information through warnings contained in its letter and the scorpion leaflet, for Mr R to be aware of the possibility of pension liberation and the consequences of it.

This was despite the fact that L&G had not spoken to Mr R to reiterate the written warnings of the risks associated with making the transfer and to ensure he fully understood the same, because the Pensions Ombudsman concluded that Mr R would have more than likely still gone ahead, even if they had telephoned him.

To summarise, it appears the Pensions Ombudsman requires Pension Administrators to assess the circumstances surrounding a request to transfer, in order to ascertain if there are any potential ‘red flags’ indicating a possible pension liberation scam. If red flags do appear, they are required to engage directly with the individual in question to inform them of said red flags and caution them of the possible consequences. If that individual decides to go ahead with the transfer regardless of the warnings from their current pension administrator, then the decision in Mr R appears to show that they will be left without redress via the Pensions Ombudsman.

If you think you may have transferred your pension into a scam, get in touch with Hugh James’ expert Financial Mis-Selling team today.

Author bio

Neil Stockdale


Neil is head of the firm’s group actions and financial mis-selling teams, specialising in handling claims for financial mis-selling relating to energy contracts, pensions, investments and timeshares.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.


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