Edward Brown says the Pensions Ombudsman's maladministration ruling against the Northumbria Police Authority for its handling of a transfer out of the Police Pension Scheme is an 'uncomfortable' decision.
Northumbria Police Authority has paid a high price for not passing on warnings about pension liberation fraud following the Pensions Ombudsman's decision regarding ‘Mr N', who transferred-out from the Police Pension Scheme to the London Quantum Scheme in 2014. London Quantum is now being investigated for pension liberation fraud, and Mr N may have lost some/all of his savings.
The ombudsman concluded it was maladministration for the authority not to have conducted proper investigations into London Quantum and for not having sent Mr N any warnings (including the scorpion leaflet). He held Mr N would not have transferred had he been warned appropriately, and ordered the Authority to provide Mr N with benefits equal to the £124,000 he lost (less whatever Mr N ultimately recovers from London Quantum).
I find this an uncomfortable decision for a number of reasons:
- The authority had (at an earlier date) put a copy of the scorpion leaflet on an employees' intranet feed, even if not sent in person to Mr N.
- The ombudsman set the bar too high when assessing what investigation the authority should have done. For example he felt the authority should have been suspicious that as Mr N was employed as a police officer in Northumbria, he appeared to be transferring to an occupational pension scheme sponsored by an undertaking with ‘London' in its name.
- The authority was criticised by the ombudsman for not contacting Mr N directly - but Mr N had an independent financial adviser (IFA) and, believing the IFA was providing FCA-regulated advice, signed a form allowing the authority to deal with the IFA.
- Mr N admits that he trusted his IFA entirely, and never read the documents he signed (or noticed the scorpion notification on the employees' intranet). It is perhaps surprising therefore that the ombudsman felt able to conclude - even with the benefit of an oral hearing - that Mr N (i) would have read the scorpion leaflet if sent to him in hard copy at the time of his transfer; and (ii) would not have transferred out as a result.
- Finally, the authority argued that having paid the transfer they had a statutory discharge under the legislation. The ombudsman disagreed - noting the discharge in the legislation applied when "the trustees…have done what is needed to carry out what the member requires". As the authority did not do all the checks he felt they should have, the ombudsman held there was no statutory discharge. But to my mind the language about "what is needed" is just shorthand to avoid repeating half a page's worth of text in earlier parts of the legislation, and if parliament had intended to incorporate pension liberation fraud good practice into the legislation it would have been included in 2015 when the section was re-written.
It is easy to feel sympathy for Mr N - who has potentially lost all of his benefits in a scam. But it is a regrettable feature of 21st century life to conclude that if something bad happens to someone then someone else - with the means to pay - must be at fault. One can conclude that the authority is not to blame without needing to believe that Mr N is the author of his own misfortune.
The case also raises a wider point. I am unconvinced the ombudsman's jurisdiction to impose orders for maladministration was intended to go beyond relatively nominal penalties. There is no suggestion Mr N could have successfully sued the authority for negligence/breach of trust - and I am uncomfortable the nebulous concept of maladministration allows him to order reinstatement of benefits worth £124,000.
Edward Brown is a pensions partner at Hogan Lovells
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