Pensions Ombudsman determines pension scheme did not do enough to prevent pension scam

Our Finance Team explores the recent case that could potentially increase schemes’ liability in respect of pensions fraud and liberation.

15 July 2018

In a significant adjudication, The Pensions Ombudsman (TPO) has directed a pension scheme to restore the benefits of a member who had transferred into a potentially fraudulent investment vehicle, ruling that the scheme had not done enough to provide warning about the potential dangers of pension scams.

The decision, in the case of Mr N (PO-12763), has been greeted with some concern, as it could potentially increase schemes’ liability in respect of pensions fraud and liberation.

The facts

Mr N was employed by Northumbria Police Authority as a police officer, and consequently became a member of the Police Pension Scheme.  In 2012, Mr N ceased to make contributions to the scheme and became a deferred member, at which time he was 39 years old.

Concerned that he would not be able to draw his pension from the scheme until age 60, Mr N was given financial advice (following a ‘cold call’), which recommended he transfer the cash equivalent transfer value (CETV) of his pension benefits to the London Quantum Retirement Benefit Scheme.  That scheme has subsequently been the subject of action from the Pensions Regulator, which is concerned that it may be a vehicle for pension liberation scams.  An independent trustee has subsequently been appointed to run the scheme, and is currently attempting to reconcile its assets and the benefits it is due to pay out.

Mr N complained to the Police Pension Scheme and subsequently the Ombudsman, arguing that the Police Pension Scheme had not done sufficient due diligence on his transfer, or done enough to make him aware of the risk of pension scams.

The decision

The Ombudsman agreed with Mr N that the Police Pension Scheme had not conducted enough due diligence nor made him aware of the risks in taking a transfer.  Key to his finding was the Pensions Regulator’s Guidance on Pensions Liberation (published in February 2013), which included a list of ‘red flags’ outlining the cases in which enhanced due diligence should be undertaken on receiving schemes, as well as a ‘scorpion warning’ leaflet to be provided to members to highlight the risks of pensions fraud.

The Ombudsman found that, despite Mr N having transferred out of the Police Pension Scheme in November 2013 (i.e. 9 months after the Regulator’s guidance), the scheme had failed to undertake sufficient due diligence on the transfer, and had not given Mr N the ‘scorpion warning’ leaflet.  This amounted to maladministration, to which the member was entitled redress.  He ruled that, had that due diligence been undertaken and the leaflet provided, the member would not (on the balance of probabilities) have transferred out of the scheme.

The ruling

The Ombudsman directed the Police Pension Scheme to reinstate Mr N’s accrued benefits, together with a payment of £1,000 for his distress and inconvenience.  In the event that the independent trustee of the transfer scheme is able to locate Mr N’s pension benefits, the Police Pension Scheme is entitled to recover their equivalent value from Mr N to prevent double recovery.


This ruling has caused some concern given the Ombudsman’s direction to the Police Pension Scheme to reinstate Mr N’s benefits, despite their having been transferred out of the scheme.  This goes beyond previous decisions by the Ombudsman and underscores the importance of the Pensions Regulator’s Guidance.  

Clearly, this is a subject the Ombudsman and Pensions Regulator take very seriously, and trustees and administrators should ensure that they have robust processes in place to ensure all necessary due diligence on transfers is undertaken. 

It is also notable that the advice initially leading to Mr N’s transfer was received following a ‘cold call’ from a financial adviser, a practice which is expected to be banned following an upcoming change in the law.