In a recent determination (Mrs G v Teachers’ Pensions (PO-26616)), the Pensions Ombudsman provided an important picture of how schemes should – and should not – manage transfer requests. In particular the Ombudsman demonstrated that “short shrift” will be given to trustees who show a lack of familiarity with the applicable scams guidance, especially at a time when the industry is well aware of the serious threat scams pose to savers.

The key facts of the case

This determination centred on a transfer request made by Mrs G, the complainant, in January 2015 to the Teachers’ Pension Scheme (“TPS”), administered by Teachers’ Pensions (“TP”). Mrs G had been advised to transfer her pensions, including her pension in the TPS and two smaller pensions with Friends Life, to the London Quantum Pension Scheme (the “LQPS”).

While the TPS proceeded with her transfer without raising any queries, swiftly completing it by mid-February 2015, Friends Life refused to transfer the pensions she had with them, flagging several concerns it had with the LQPS. These turned out to be prescient, as Mrs G’s TPS pension, once transferred, appears to have been invested in high risk unregulated assets. Dalriada (the independent trustee which the Pensions Regulator appointed to the LQPS) is now trying to reconcile the remaining assets and establish any funds that could be returned to members.

Mrs G therefore complained that TP should have conducted proper due diligence, like Friends Life, and should have flagged concerns about the LQPS. If it had done, she did not think she would have gone ahead with the transfer.

The Ombudsman’s decision: a clear failure to apply the transfer guidance

Unusually, when investigating the matter the Ombudsman felt the need to hold an oral hearing to test the evidence and understand precisely what had happened, with Mrs G and TP’s head of policy and technical giving evidence.

After considering this evidence, the Ombudsman decided firmly against TP. In the Ombudsman’s view, they had failed to put in place proper processes to conduct adequate due diligence or to warn Mrs G of the potential consequences of transferring. In particular, TP had failed to properly apply the applicable guidance on transfers at the time (the Pensions Regulator’s 2014 Action Pack). Interestingly the Ombudsman commented on not just the specifics of the guidance, but also on its “overall tone”, noting that it was for schemes to enter into a dialogue with members looking to transfer out and engage with them to understand the transfer. This was something TP had plainly failed to do in this case.

In terms of the guidance’s specific requirements, TP had also omitted to check  whether the employer was geographically distant from the member and whether the employer actually employed the member. Both of these would have been “yes” in this case, which should have given TP cause for concern. TP’s failure to properly engage with Mrs G also meant it did not discover other issues, like the unsuitable type of investments being made through the LQPS or the fact that Mrs G was being introduced to the LQPS by an unregulated introducer. 

On the facts, if TP had raised these concerns, the Ombudsman held that Mrs G would have withdrawn the transfer request. Therefore TP were directed both to pay her £1,000 for distress and inconvenience and to reinstate her benefits in full (although if she received money from Dalriada or the Financial Services Compensation Scheme, this would need to be passed on to TP to avoid double recovery). 

The Ombudsman’s approach to transfer cases

There are several interesting features of this determination. The fact that the Ombudsman chose to hold an oral hearing, before carefully weighing up the evidence and arguments in this remarkably long (30-page) determination, shows the importance the Ombudsman gives to transfer cases like these. Given the increasing complexity of the regulatory landscape around transfers over the past few years, as highlighted by my colleague Will Rose in his recent blog, one can only imagine these cases will become more and more complex and contested in the future.

It is also notable that the Ombudsman explicitly compares the process followed by TP with what was expected by the standard of industry practice at the time, mentioning that TP’s failings were particularly concerning since by 2015 the risk that scams posed to members was already well known throughout the industry. One imagines that this level of awareness would be even higher now, given that scams and transfers have become prominent on most trustees’ agendas, driven by the strong interest and activity of the regulators (both the Pensions Regulator and the FCA) in this area.

However, the Ombudsman also seemed to recognise that trustees can be in a difficult position when it comes to transfers, noting that there is a proportionate balance of risk to be struck between acting promptly and being satisfied that the transfer does not put the member’s benefits at risk. Nevertheless, in his view there is a difference between “being dilatory” and “being diligent”, and in this case he felt TP had sufficient time to do the proper due diligence. It will be interesting to see what the Ombudsman makes of cases involving the current transfer regime introduced on 30 November 2021, where trustees are under far greater administrative burdens within the tight statutory timeframes.

The current transfer market and the cost of living crisis

All of these issues are likely to become more and more important for trustees, with the market for DB pension transfers reportedly hitting a two-year high late last year, and with the cost of living crisis potentially pushing members to do what they can to access their savings early. This determination is therefore a timely reminder that there are no excuses for failing to get to grips with the Pensions Regulator’s guidance on scams, nor for falling behind industry practice in this area.