The Pensions Ombudsman has upheld a complaint against the trustee of a small pension scheme for multiple breaches of trust and instances of malpractice, while demanding they reimburse the scheme to the tune of hundreds of thousands of pounds.
A complaint was brought against R Kench, trustee of the Grosvenor National Ltd Retirement Benefits Scheme, by Ms T and two additional applicants, who alleged the trustee had invested the scheme’s funds inappropriately leading to the loss of members’ rights and benefits.
A total of £615,000 was transferred into the scheme by its seven members but it is unclear whether that money still exists.
The case began in 2011 when Kench’s brother, D Kench, incorporated Pension Assist, an unregulated introducer.
Kench was employed by Pension Assist from that time onwards, and introduced his brother to independent financial adviser Stuart Stone, although D Kench could not recall exactly when or how they had met.
Stone proposed an investment arrangement, which involved the establishment of a pension scheme that would invest in a finance company, Realsave, set up by his wife.
Stone said Realsave would provide short-term finance to businesses that could not otherwise get credit, while holding goods in a warehouse as security. He said he had access to other investments that could cover any shortfall in returns.
Kench, in his capacity as trustee of the Grosvenor scheme, did not investigate the validity of these claims or carry out due diligence. The warehouse later proved to be empty.
Though Realsave had no annual returns or accounts, had received no existing investments, had lent no money, and had no contracts in place with banks, D Kench told the PO hearing that he and his brother had viewed the investment as a “game-changing opportunity to make a great deal of lolly”.
Grosvenor National Limited was established in 2012 by Kench so it could be the scheme’s sponsoring employer, and he served as the scheme’s trustee.
Despite this, D Kench testified at the hearing that he had been unaware of the statutory duties imposed on scheme trustees, nor aware of the Pensions Regulator’s website or the guidance available there, and had taken no steps to educate himself on the role, nor seen any reason to do so.
Ms T, the principal applicant, joined the scheme in 2012 having been dissatisfied with the performance of her existing scheme.
She believed it important to seek advice from a regulated provider, and believed Pension Assist was such an entity.
In 2013, the total value of her previous company pension, £175,605, was transferred into the Grosvenor scheme.
Scheme amasses £615k
The scheme grew to have seven members who transferred a total of £615,000 into it.
Half of each member’s pension was invested in Realsave, 30 per cent was taken by Pension Assist as a commission, and the remainder was paid to the member as a “fee”.
Members were not made aware of this arrangement, however.
Following the investment in Realsave, Stone stopped speaking to the Kench brothers and sent no further documentation. He was arrested in 2014 and charged with fraud in relation to a separate investment.
Stone did inform the Kenches that he was being investigated, but they saw no reason to look into it as he had seemed, in the trustee’s words, “confident he would be cleared”.
Stone was sentenced in 2014 to six years in prison and received a confiscation order to pay £1,141,680 within three months or face a further seven years in prison.
Kench argued the funds invested in Realsave should be returned to the scheme in the event they were used to meet the confiscation order issued against Stone.
Realsave had been dissolved some weeks prior to Stone's court hearing, but the Kench brothers had been unaware of this fact.
D Kench told the ombudsman that he had contacted either TPR or the Financial Conduct Authority, but seemed unclear of the distinction between them and could not recall which he had written to.
The ombudsman’s investigation was further hampered by the fact that nobody, including the trustee, had a copy of the scheme’s deeds and rules.
D Kench said he did not consider it necessary to look at the scheme’s deeds and rules because it was “a mass of literature, like a phone book, that wouldn’t make a lot of sense to a lay person”.
Pension Assist continued to send annual reports to members as though Stone’s conviction had never taken place, despite it showing a financial position that was very likely untrue.
It was eventually dissolved in 2018, but members were not informed.
Multiple failings
In his decision, Pensions Ombudsman Anthony Arter found six instances where trust was breached and a further two acts that constituted maladministration.
The trustee, Kench, had breached his fiduciary duty to manage conflicts of interest and his duty not to profit from his position, and had not complied with the regulatory requirement to “have knowledge and understanding of the scheme’s documents or the law relating to pensions and trusts”.
Further breaches of trust included the transferring of “large sums of money” to his brother D Kench’s company, of which he was himself an employee.
The trustee had provided “false information to members, in breach of the trustee’s duty to act honestly and in good faith”, the ombudsman stated.
The trustee committed maladministration by failing to have regard to TPR’s code of practice, and by failing to “make the necessary enquiries to establish that the payment of members’ funds to members on joining the scheme constituted an unauthorised payment”.
The ombudsman criticised the “general blunting” of the trustee’s “moral antennae”, which he said explained “why the trustee had a lower standard of honesty, as well as his recklessness for others’ rights”.
Arter determined that the trustee must pay into the scheme “the total amount of the funds transferred into the scheme, including any amount paid to Pension Assist as commission in respect of the scheme’s members’ transfers into the scheme” within 28 days, as well as an interest rate of 8 per cent.
Finally, the trustee has been instructed to pay Ms T and the additional applicants £6,000 each to remedy the “exceptional maladministration causing injustice”.
Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert
