Pension schemes that have failed to detect a scam could be hit with more ombudsman complaints as more cases of this type make their way through the system, industry experts have warned.
Several experts warned pension schemes would be seeing more fraud-related claims in the near future, as it often takes years for victims of fraud to realise that all their savings have been stolen.
The warning comes after the Portsmouth City Council lost its case with the Pensions Ombudsman after it failed to stop a pension transfer to a scam.
A number of pension schemes have been hit with compensation claims in recent years after they allowed pension transfers into scams because of their lack of due diligence.
In these claims the individual is often a victim of pension scammers. However, in many cases the ombudsman has found that the ceding scheme was in the wrong as it hadn’t carried out proper due diligence checks before agreeing to transfer into the fraudulent receiving scheme.
Tom Selby, senior analyst at AJ Bell, said: “Action in recent years to ban pension cold-calling, coupled with greater regulatory scrutiny and public awareness initiatives, hopefully mark the beginning of a fightback against retirement fraudsters.
“It can take years for those who have been victims of fraud to realise they have been caught out, so it would be no surprise to see more of these cases filter through the system."
An added problem is the variety of approaches providers have to carrying out due diligence, which is partly the result of disputes over who should have the final say in a transfer.
Mr Selby highlighted a case from 2016 where a High Court judge ruled in favour of a clients’ right to transfer her pension into a new scheme despite her existing provider’s concerns about it.
He said: “The Royal London case certainly didn’t help providers looking to block transfers to suspect schemes at the time.
"The reality is the statutory right to transfer created a significant tension and different schemes have interpreted due diligence requirements in different ways.
“This has not been helped by a lack of clarity from regulators on exactly what due diligence checks need to be carried out, resulting in a varied approach across the industry.
“A clear statement from the various regulatory bodies involved on the roles and responsibilities of providers in relation to due diligence would go a long way to bringing about greater certainty for members and the wider retirement market.”
Margaret Snowdon, chairwoman of the Pension Scams Industry Group, also believes that more of these cases will hit the industry soon.
Ms Snowdon said: “I believe more cases are already coming to light, especially with claim management companies seeing an opportunity.
“It is inevitable that the Pension Ombudsman’s workload will increase.”
In the latest case of this kind the Pensions Ombudsman found that the Portsmouth City Council pension scheme didn’t carry out proper due diligence before transferring the claimant's pension to a fraudulent scheme.
The ombudsman ruled that the scheme didn't ask enough questions before deciding to transfer the pension.
The claimant, who the ombudsman called Mrs H, was cold called by Pension Matters Associates Limited in 2013 to review her pension arrangements, which then contacted the council to ask for information about Mrs H’s scheme and to request a transfer.
The council sent Pension Matters Associates the information requested along with a transfer request form and informed Mrs H of the possibility of the receiving scheme being a scam by sending her a copy of the Pension Regulator’s action pack on pension liberation fraud surrounding transfers, which she acknowledged she had read.
The £26,234 transfer was completed in November 2013 but by late 2015 Mrs H became concerned about her remaining funds and approached a claims management company to help her submit a complaint.
The council argued that it had made the necessary checks when it received the completed transfer documentation and it could not refuse to process a statutory transfer request.
It also said Mrs H should have been aware of a possible scam due to the TPR’s warning.
The ombudsman ruled it was not enough for the council simply to send out a ‘scams warning’ and leave it at that.
Also that the council did have discretion over whether or not to do the transfer, though it didn’t seem to realise this, it said.
The council should have also communicated its concerns to Mrs H to allow her the chance to think twice about doing the transfer, the ombudsman added.
It made the point that the council never checked whether she had an employment connection with the receiving scheme or why she wanted to transfer from the fund to a new occupational pension arrangement which was established several hundred miles away from where she resided.
Therefore, the ombudsman ordered the council to reinstate Mrs H's accrued benefits in the fund and pay £500 for the significant distress and inconvenience caused.
Steve Webb, director of policy at Royal London said: “There is no doubt that regulators and ombudsmen are sending a clear message to pension schemes that they need to do more than send out leaflets warning about the risk of scams.
“Pension schemes and their administrators understand the world of pensions far better than most individual members and they need to use their industry knowledge to help members to get the best outcomes, including alerting the member to potential ‘red flags’ such as a worker in one part of the country transferring their pension to an occupational pension scheme at the other end of the country with which they have no prior connection.
“Whilst members take the final decision, there is no doubt that schemes are rightly now expected to do more to help ensure that that decision is as informed as possible.”
amy.austin@ft.com
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