Ombudsman awards member £43,700 for transfer value delay

In our January Update we reported on the case of Tenconi v The James Hay Partnership in which the court allowed a member's appeal against the Pensions Ombudsman's rejection of the member's claim relating to loss of opportunity to invest in the stock market immediately after the Brexit referendum as a result of a delay in processing the member's transfer value.  The Ombudsman had held that he could not conclude what actual loss the member had suffered or that such loss was reasonably foreseeable to the pension provider.  On appeal the judge held that it was reasonably foreseeable that a member might suffer loss as a result of a delayed transfer value, and that expecting the member to identify the specific shares he would have purchased was setting far too high a test.  The judge remitted the case back to the Ombudsman saying that the Ombudsman firstly needed to reach a conclusion regarding the date the funds would have been received by the scheme in the absence of maladministration.  If the member was able to convince the Ombudsman that he would have invested the funds, the Ombudsman would need to consider the nature of the portfolio the member would likely have bought.

Following remission of the case to him (Mr T CAS-38354-V5L8) the Ombudsman concluded that in the absence of maladministration, the funds would have been received by 23 June 2016, the date of the Brexit referendum.  Telephone calls between the member and his pension provider on 10 June 2016 showed that the member had said that 23 June 2016 was a key date for him so that he could take the opportunity of a fall in the market to "get some really good purchases in".  The Ombudsman accepted the member's argument that had his pension fund been available to invest immediately after the leave vote, he would have invested the full £250,000 fund in the FTSE 100 Index, the member having provided the Ombudsman with a detailed explanation of his attitude towards investment and put forward a good case for investing in the FTSE 100 Index rather than individual stocks.  He awarded the member £43,700 being the profit the member would have made had he invested his fund immediately following the leave vote in the period until August 2016 when his transfer value was actually received.  The Ombudsman also awarded interest at the court's judgment rate of 8%.

Our thoughts

This case illustrates the potential for a delay in processing a transfer value to be very costly for a pension provider, particularly if it results in a member being out of the market at a time of market volatility.  With the US elections and the end of the Brexit transitional period on the horizon and continued uncertainty regarding the impact of Covid-19, the potential for significant stock market volatility in the coming months is obvious, so pension providers would be well advised to make sure they have processes in place to avoid delays to transfer values.

Ombudsman rejects member complaint re provider due diligence shortly after Regulator warning

The Pensions Ombudsman has rejected two similar complaints by the same member against two different pension providers who processed the member's request to take a transfer value to a small self-administered scheme (SSAS) in 2013, shortly after the Pensions Regulator had published its guidance on pension liberation fraud setting out increased levels of due diligence required of trustees and administrators when processing a transfer request (Mr Z PO-27889 and PO-27901).  The member's funds were lost or misappropriated following the transfer and the member complained that the pension providers should have carried out increased due diligence.  In support of his claim, the member also pointed out that two of his four pension providers refused to carry out the transfer as they had concerns about the SSAS.  

Both transfers had taken place in early March 2013.  The Pensions Regulator's guidance had been published on 14 February 2013.  Both pension providers argued that they had acted in line with industry practice at the time, which was to check that the receiving scheme was registered with HMRC.  One of the providers said that it had also checked that the receiving scheme was not on its own internal "watch-list" and had previously warned the member that arrangements offering access to a pension before age 55 could give rise to unauthorised payments and a large tax bill.

The Ombudsman noted that the transfers had taken place after the Regulator had issued its guidance, but he deemed it reasonable to allow the providers the necessary time to implement any changes arising from this.  The Ombudsman said that, in line with previous determinations, he considered a 3 month period from 14 February 2013 a reasonable timeframe in which to do so.  According, he held that the two providers had not failed in their due diligence obligations at the time of the transfer and did not uphold the complaint.

Our thoughts

It has been clear for some time that the Ombudsman views the Pensions Regulator's February 2013 guidance as being of great importance in determining what level of due diligence could reasonably be expected of a scheme asked to make a transfer value.  These latest determinations give a helpful indication of the Ombudsman's approach where a transfer value was paid shortly after the guidance was issued.

Complaint regarding SSAS's failure to keep minutes not upheld, but failure to explain benefit decisions was maladministration

The case of Mr N (PO-21495) highlights the Ombudsman's approach to a number of issues that can arise with SSASs, namely informal trustee decision-making, illiquid assets and trustee indemnities.

The dispute arose following the death of Mr N's parents, who had both been member trustees of the SSAS, leaving one remaining member trustee and a professional trustee. Mr N had been nominated as a death benefit beneficiary on an expression of wish form. The Ombudsman appears to have been presented with a litany of different complaints against the remaining trustees by a Mr D acting on behalf of Mr N.  In its initial response to the Ombudsman complaint, the professional trustee said that it had acted cautiously in its dealings with Mr D due to being aware that he had been jailed for financial fraud, and that it considered Mr N to be a vulnerable individual.  Although some of the complaints brought were scheme specific, we consider here some of the issues which the Ombudsman had to consider which are likely to be relevant to many SSASs.

One of the complaints related to the failure of the Trustees to keep minutes.  Since 2013 there had been only two trustees.  The professional trustee explained that communications were conducted by telephone, e-mail or post and that there were therefore no formal meetings to be minuted.  The scheme rules provided that the Trustees could regulate proceedings as they thought fit and make decisions "by written resolution… or in meeting (sic) or otherwise (including by telephone, electronic mail and any other means or combination of means…whether constituting a meeting or not)."  The Ombudsman noted that once the deaths of the other member trustees had left only two remaining trustees, there were no formal meetings to be minuted.  He held that the Trustees should therefore not be criticised for failing to keep minutes.  However, he did note that despite protracted correspondence, the Trustees had not produced any documentation to show how they had decided what amounts should be paid to Mr N as death benefits from time to time, or any communication to explain their decision-making.  He held that this constituted maladministration on behalf of the Trustees.

One of the issues faced by the Trustees was that the scheme assets had a value exceeding £750,000, but the scheme was predominantly invested in a single property and had few liquid assets with which to pay benefits.  This was despite the fact that the one remaining member was already drawing a pension.  The Ombudsman said that he would expect the Trustees to sell the property if they could obtain a reasonable price for it.  However, in the meantime the amount of income available for distribution to the beneficiaries was restricted.  The Ombudsman noted that the Trustees had a difficult task in balancing the rights of the sole pensioner member with the rights of Mr N.  The Ombudsman considered that it was not unreasonable for the Trustees to conclude, when the death benefits first became payable to Mr N, that the remaining member's level of pension income should be protected, as he was relying on it for his retirement income.

The Ombudsman noted that the trustees would be entitled to an indemnity under the scheme's trust deed and rules in respect of any award made against them for maladministration, as their conduct did not amount to "wilful and individual fraud or wrongdoing" (the exclusion wording under the indemnity).  Taking a different view from the adjudicator who first considered the complaint, the Ombudsman awarded £500 to Mr N for distress and inconvenience, for taking longer than they should have done to pay any benefits to Mr N.  The Ombudsman noted that the pension fund was larger than it would have been had the Trustees paid death benefits to Mr N at an earlier stage.

Our thoughts

It is likely that a lot of SSAS business will in practice be conducted on a relatively informal basis. The Ombudsman's decision that the Trustees should not be criticised for failure to keep minutes is likely to be a welcome one for most SSAS trustees, though it is worth noting that in this case the scheme's deed and rules had a broadly drafted decision-making power, and that other schemes may have more prescriptive rules about how trustee decisions should be made.  This case also illustrates the issues which can arise when a scheme is predominantly invested in an illiquid property asset at the point when benefits are payable, particularly when a member has died and death benefits are payable to a non-trustee.

Complaint upheld where trustees failed to act on member's request to re-issue transfer value quotation during exceptionally busy period

The Pensions Ombudsman has upheld a complaint against trustees who, at a time when they were receiving a particularly high volume of member enquiries, failed to act on a member's request to reissue a cash equivalent transfer value quotation in time for the member to act on it (Mr N PO-21990).

Mr N was a member of the British Steel Pension Scheme.  On 30 August 2017 he requested a cash equivalent transfer value (CETV) quotation.  He subsequently chased for it on 29 September and 16 October of the same year.  On 7 November the scheme administrator wrote to Mr N providing a CETV quotation of £26,635.33, guaranteed for three months from the date of issue.  However, Mr N did not receive the letter.  On 4 January 2018, Mr N tried several times to telephone the administrator, but the line was engaged.  That same day he wrote to the administrator to say that he had not received a CETV quotation.  On 1 February, Mr N attempted to telephone the administrator, but was again unable to get through.  He sent an e-mail to the administrator explaining that he had not received his CETV quotation and needed this information in order to decide whether to transfer out of the Scheme. Mr N tried again on 9 February to telephone the administrator, but again could not get through.  Consequently he raised a customer service complaint and explained that he had not received a CETV quotation despite having chased for it on several occasions.  On 14 February 2018, the administrator confirmed that Mr N had been sent a CETV quotation on 7 November.  It said that the expiry date (7 February 2018) had now passed and that, in line with his statutory entitlement, only one CETV quotation would be issued in any 12 month period.

From October 2017, the Scheme had begun its "Time to Choose" exercise in which members were asked whether they would like to transfer to a new scheme or remain in the Scheme and enter the Pension Protection Fund.  In April 2018, Mr N transferred his benefits to the new scheme.  As a result, he had the right to request a CETV from the new scheme which he duly did, following which he transferred out of the scheme.  The CETV was £24,568.22, so £2067.11 less than the CETV quotation provided in November 2017.  Mr N consequently made a complaint against the Scheme trustee.

In response to the complaint, the Trustee said that it had issued the CETV to the correct address within statutory timescales and that the Trustee could not be responsible for the post once it had left its office.  It accepted that there were delays in responding to Mr N's concerns, but said that this was as a result of the extremely high volume of member queries during this period.

The Ombudsman upheld Mr N's complaint.  He accepted that there had been no maladministration in the provision of the original CETV.  The Ombudsman agreed that the Trustee could not be held responsible for any failings in the postal system.  However, he held that there was maladministration in the handling of Mr N's request for an update.  Mr N had chased the CETV quotation on two separate occasions in writing before the expiry date.  

The Trustee had sought to argue that there "cannot be maladministration for the Trustee to fail to provide a document to a member, in circumstances where the Trustee has no legal duty to provide that document to the member in the first place", but the Ombudsman disagreed.  He held that by failing to respond to a request for a copy of the CETV quotation within a reasonable timeframe, the Trustee failed to comply with its duty to act in the best interests of beneficiaries.  The Ombudsman also disagreed with the Trustee's argument that it was not at fault for failing to respond to the request because it experienced an unprecedented level of member interaction during its "Time to Choose" exercise and had brought in as much additional administrative resource as it was able to.  The Ombudsman said that the maladministration involved a failure to reissue a CETV.  As reissuing a letter did not require specialist skills, it should have been within the Trustee's power to scale up its operations to ensure that this type of request was dealt with promptly.

The Ombudsman ordered the Trustee to contact the scheme which had received Mr N's transfer value and ask it to calculate the notional current fund value on the basis that the original transfer value had been paid on 7 February 2018.  If this value was greater than the actual fund value, the Trustee should pay the difference into the receiving scheme.  He also ordered the Trustee to pay Mr N £500 for the distress he had experienced.

Our thoughts

This case illustrates how a failure to act promptly on a straightforward request from a member can escalate into an Ombudsman complaint, and that where the member makes a simple request such as asking for a copy of correspondence already issued, the Ombudsman will expect a scheme to comply even where the member cannot point to a specific legal duty to do so.  It also shows that the Ombudsman will expect trustees to allocate sufficient administrative resources to deal with routine member requests even when a particular exercise is leading to much higher levels of member correspondence than usual.