Ombudsman holds scheme's requests for evidence of entitlement were reasonable

The Pensions Ombudsman has rejected a member's complaint that the NHS Pension Scheme's requests for documentation from her caused a delay in bringing her benefits into payment (CAS-41310-M3X4).  

As the member approached age 65 she applied for payment of her benefits from the Scheme.  The Scheme's administrator asked the member to provide proof of her date of birth in the form of either her birth certificate or her passport.  It also asked for her marriage certificate and her husband's birth certificate, but said that it was prepared to accept certified copies of the latter documents provided they were certified in accordance with the official guidance on certification.  The only document provided by the member with her benefits claim form was a copy of her marriage certificate which had not been certified correctly.  The member subsequently brought a claim under the scheme's internal disputes resolution procedure regarding the fact that her benefits had not been paid to her.  The member subsequently provided a certified copy of her paper driving licence, and her husband e-mailed the scheme's administrators to say that he did not wish to receive any spouse's pension benefits from the scheme, and that the member would be opting to receive a one-off lump sum payment which would extinguish any entitlement to a spouse's pension.

The Scheme eventually agreed, by exception, to accept the certified copy of the member's non-photo driving licence as proof of her date of birth.  Her pension was put into payment and full arrears paid.  The member opted to receive a pension rather than a one-off lump sum.

The Pensions Ombudsman rejected the member's complaint.  He agreed with the Adjudicator's opinion that the evidence the Scheme had requested was reasonable and was not inconsistent with the rest of the pensions industry.  The Ombudsman acknowledged that the member was concerned about sending her passport in the post, but noted that HM Passport Office regularly uses Royal Mail to issue new passports to individuals, and that more secure options such as recorded delivery were available.  The member had chosen to receive a pension and a spouse's pension would be payable on her death.  It had therefore been reasonable for the Scheme to request evidence of the member's marriage and husband's date of birth at the point of bringing the member's pension into payment.

Our thoughts

The outcome of this Ombudsman determination is unsurprising, but it is a useful determination for Trustees and scheme administrators to be aware of in case members query requests for documentation evidencing identity and/or date of birth.  The Ombudsman might have been more sympathetic to a member who did not have the documents that the Scheme was requesting.  In this case it appears that the member did have a passport, but was reluctant let it out of her possession.

Ombudsman says schemes should normally have adapted processes within one month of Scorpion leaflet, not three

In his determination in the case of Mr R (PO-24554), the Ombudsman has signalled a change to his approach in relation to complaints involving transfers made shortly after the Pensions Regulator issued its "Scorpion" leaflet in 2013 which set out the steps it expected pension schemes to take to reduce the risk of members transferring to scam arrangements.  The Ombudsman has consistently viewed the issue of the Scorpion leaflet as a watershed moment as regards the level of checks which transferring schemes should be expected to make before paying a transfer value.  However, he has accepted that schemes needed some time to adjust their procedures to take account of the Scorpion leaflet.  In previous determinations, the Ombudsman has regarded three months as a reasonable timeframe, but in this most recent determination the Ombudsman comments that he is not bound by his previous determinations and that, having reviewed the evolving regulatory position and previous determinations, he now considers that a period of one month would be sufficient for a scheme provider to put in place any procedures necessary as a result of the Regulator's new guidance. 

In Mr R's case, the transferring scheme received the transfer value request just days before 14 February 2013, the date the Scorpion leaflet was issued. The transferring scheme attempted to pay the transfer value by the following day.  The matter was complicated by the fact that the initial payment was returned due to an error with the scheme's bank account, and the transfer payment was not actually paid to the receiving scheme until 19 March 2013.  Documentation provided to the transferring scheme showed that the scheme to which the transfer value was being paid had only just been registered with HMRC.  The Scorpion leaflet identified a newly registered receiving scheme as a key warning sign of a possible scam.  The Ombudsman said that in Mr R's case the transfer value had been paid by the day following the issue of the Scorpion leaflet, and that re-sending it due to the issue around the bank account was "essentially an administrative action".  He therefore did not uphold Mr R's complaint.  

Our thoughts

The significance of this determination lies not in the conclusion the Ombudsman reached in the particular case, but in his comment that pension providers should generally have put in place any procedures needed as a result of the Scorpion guidance within one month.  This is a departure from the Ombudsman's previous position of effectively allowing schemes a grace period of three months within which to change their procedures.  The Ombudsman said that he would have expected a pension provider that did not meet the one month timeframe to have considered temporarily suspending transfer values while it made the necessary arrangements, or to have contacted the Regulator to request an extension on the stipulated transfer deadlines.

Ombudsman holds pension provider gave adequate warnings of pension liberation risk

The Ombudsman has rejected a member's complaint that his transferring scheme provider should have engaged verbally with him to warn him of pension liberation risks (Mr R PO-28256).

The member had been persuaded to transfer his pension fund from a personal pension scheme to a newly established small self-administered pension scheme.  The member was appointed as sole trustee of the scheme and sole director of its principal employer.  The member was persuaded to invest most of his fund in hotel accommodation in Cape Verde.  After seeing a BBC Panorama programme featuring investment scams involving properties in Cape Verde, the member became concerned that he had been a victim of a scam.  With the assistance of a claims management firm, he brought a complaint against the provider of the transferring scheme.  In particular, he alleged that the provider should have engaged verbally with him before making the transfer.

When sending the transfer paperwork to the member, the transferring scheme provider had referred to the Pension Regulator's leaflets contained in the original transfer pack.  The covering letter said that the provider had several concerns, specifically: the member might not have received advice from a financial adviser authorised by the FCA, the scheme's trust deed stated that a proportion of the investment might be made outside the UK, and that any overseas investment would not be protected by the Financial Services Compensation Scheme.

In August 2014 the member had signed a form of discharge and declaration supplied by the transferring scheme.  This confirmed that, having read the previous letter which outlined the provider's concerns, the member still wished to proceed and confirmed that he:

• was exercising his statutory right to transfer;
• had read and understood the Regulator's Scorpion leaflet warning;
• discharged the transferring scheme provider from liability on making the transfer payment;
• was aware of the risks and would not hold the provider responsible for any losses or fees, or seek any compensation;
• had received financial advice in relation to the transfer; and 
• acknowledged that in making the transfer payment the provider was not endorsing the suitability of the receiving scheme or any of its investments.

The Ombudsman did not uphold the member's complaint.  He considered it more likely than not that the member would have proceeded with the transfer even if the provider had spoken with him to reiterate warnings about the risks.  He noted that the member had said that he had been convinced the transfer was a good idea because of the investment returns he was expecting to obtain.  The Ombudsman considered that the pension provider had given sufficient warnings to the member and that the member had chosen to disregard them.  The Ombudsman said that the member did have to take some responsibility for his actions.  If he was unclear on the implications of what he was being asked to sign, he ought to have asked sufficient questions to satisfy himself before proceeding.

Our thoughts

The question of the extent to which financially unsophisticated members should be held to the wording of disclaimers in discharge forms has been the subject of numerous (and sometimes conflicting) decisions by the Pensions Ombudsman, the Financial Ombudsman Service and the courts.  This case illustrates the important role which warning letters and discharge forms may play when a scheme is facing a claim from a member who has been the victim of a pension scam.

Ombudsman holds Trustee acted properly in reducing accrual rate

The Ombudsman has not upheld a complaint made by members of the Pilots National Pension Fund (PNPF) regarding the scheme Trustee's decision to reduce the future accrual rate from 1/60ths to 1/70ths (CAS-27382-Q6L3).

The members who brought the complaint had all joined the PNPF before 2002.  Between 2000 and 2016, various changes were made to the PNPF's benefit structure in order to address the PNPF deficit.  These included changing the accrual rate from 1/60ths to 1/70ths, but only for members who had joined from 2002 onwards.  On 1 March 2018, contribution rates were raised for all PNPF members.  At a subsequent Trustee meeting it was noted that post-2002 members were "subsidising" the benefits of pre-2002 members in that all members paid the same contribution rate but post-2002 members had a lower accrual rate.  The Trustee agreed that in terms of cost and logistics it would be preferable for all members to be on the same accrual rate.  In order to determine whether this should be an accrual rate of 1/70ths or a "blended rate", the Trustee gathered opinions from ten PNPF members.

The minutes for the next Trustee meeting showed that the Trustee received training on the correct process for decision-making.  It reviewed the comments received from members and noted the most frequently raised concerns were the affordability of the contribution rate and the disparity in accrual rates for different members.  The Trustee was given actuarial advice to move all members to an accrual rate of 1/70ths, but decided to carry out a full member consultation before taking this decision.  The Trustee subsequently wrote to all members regarding its proposal to move pre-2002 members onto an accrual rate of 1/70ths which would result in lower contributions for all members.  The Trustee received feedback from 32% of post-2002 members and 24% of pre-2002 members.  Post-2002 members were broadly supportive of the proposed changes whereas pre-2002 members were largely against them.  The Trustee subsequently considered the option of offering members a choice of contribution rate, but concluded this was not practical.  The Trustee decided to go ahead with the proposed changes.

A number of pre-2002 members brought a complaint to the Pensions Ombudsman.  They complained that they would no longer accrue the benefits which they had expected and that the concerns they had raised in the consultation had been ignored.

The Ombudsman did not uphold the complaint.  He noted that it was the Trustee's responsibility to address the deficit in the PNPF.  He agreed with the opinion reached by the Adjudicator at his office that:

• the Ombudsman's role in such cases was not to decide whether the Trustee's decision was the right one, but to consider whether it was reached in a proper manner;
• the Trustee had directed itself correctly in law and considered all relevant factors.  It was clear that the Trustee had discussed all suggestions and comments raised during the consultation process.  Indeed the changes were specifically aimed at addressing member concerns raised during the previous consultation, namely affordability of contributions and the fact that some members enjoyed higher benefit accrual despite all members contributing at the same rate.

Our thoughts

This case illustrates that when dealing with a complaint regarding a trustee decision, the role of the Ombudsman is not to determine whether he agrees with the decision, but whether the trustee followed a proper decision-making process.  In this case the consultation carried out by the Trustee, and its minutes showing that issues raised in the consultation had been considered, were helpful to the Trustee in being able to demonstrate that a proper decision-making process had been followed with all relevant factors considered.

Trustee wrong to refuse to progress transfer without deciding whether scheme was QROPS

The Ombudsman has upheld a complaint where the Trustee refused to action a member's request to take a transfer value to a Jersey-based scheme because the Trustee could not reach a decision on whether or not the Jersey scheme met the definition of a "qualifying recognised overseas pension scheme" (QROPS) (Mr Y PO-24361).

The member's request to take his statutory cash equivalent transfer value (CETV) to a pension scheme in Jersey gave rise to a considerable amount of correspondence, with the transferring scheme trustee seeking various information in order to satisfy itself that the scheme was a QROPS. 

Several months after the member's transfer request, the Trustee said it would not be approving the transfer because its due diligence had "not been conclusive in the context of HMRC rules" and the risk of the scheme being sanctioned if it made the transfer meant that it could not be approved.  Its e-mail said, "The Trustee considers that the further due diligence required would be disproportionate in time and cost given the position on HMRC rules will not be altered by such an exercise. The Trustee is prepared to reconsider this matter if [the member] wishes to bear the cost of further due diligence including the fees of the Trustee’s legal adviser.” 

The member was only able to transfer his pension fund to the Jersey scheme by transferring his fund to a different UK registered pension scheme which was willing to make a transfer to the Jersey scheme.

The Ombudsman held that it was maladministration for the Trustee to refuse the member's transfer request for the reason given by the Trustee.  He accepted that HMRC's refusal to guarantee that it would regard a scheme as a QROPS, and the resulting tax risk from HMRC's position, added "a greater degree of uncertainty to the Trustee's deliberations".  However, he said the Trustee could not use this to negate the member's right to a transfer value under overriding legislation.  He said that the Trustee should not have suggested carrying out further due diligence at the member's expense, particularly when it had said that further information would not have clarified the HMRC position which was its main reason for declining the request.

The Ombudsman ordered the Trustee to:

• pay the member £1,000 for distress and inconvenience;
• decide within 28 days whether the Jersey scheme was a QROPS (ignoring the possibility of HMRC withdrawing QROPS status in future) and, in the event that it concluded the scheme was not a QROPS, set out the basis for its conclusion (with the member having the opportunity to make another Ombudsman complaint if dissatisfied with the Trustee's response);
• if the Trustee concluded that the Jersey scheme was a QROPS, compensate the member for losses suffered as a result of its failure to pay the transfer value as requested.  (The determination sets out in detail the basis on which such compensation should be calculated.)

Our thoughts

Trustees faced with a request to pay a statutory CETV to a purported QROPS can be in a difficult position, as HMRC makes clear that inclusion of a scheme on its "ROPS" list is no guarantee that the scheme is a QROPS, and there are penal tax consequences for making a transfer to an overseas scheme that is not a QROPS.  Nevertheless, this determination makes clear that if the member has a statutory right to a transfer value, trustees must reach a conclusion as to whether the proposed receiving scheme is a QROPS and must not require the member to pay for the due diligence needed to reach their conclusion.