The Pensions Ombudsman has ordered a trio of pension scheme trustees to repay £12.6mn, after it found “multiple breaches of trust and many acts of maladministration”, which caused the loss of funds and impacted members’ pensions.
The case was brought by Dalriada Trustees, which was appointed by the Pensions Regulator as independent trustee of the Optimum Retirement Benefit Plan in 2018, and an individual complaint by a scheme member.
The scheme, established in 2015, had initially Gordon Craig as its sole trustee and Optimum Financial Solutions Limited – of which he was a 60 per cent shareholder – as the administrator. Martin Kelly and Gerard Reilly were appointed as scheme trustees in 2017.
TPO’s decision, published on December 20 after an investigation by the Pensions Dishonesty Unit, showed that Optimum Financial Solutions Limited did not have any permissions for pensions-related regulated activities according to the Financial Conduct Authority’s register.
Nevertheless, it received “commission” payments from the scheme, amounting to over £1.3mn, it stated.
The scheme amassed assets worth £13.4mn after approximately 288 members transferred their pension benefits. Introducers were hired to increase the scheme’s membership, receiving over £600,000.
TPO stated that after transferring to the scheme, a number of members accessed a proportion of their funds by entering into loan agreements with companies, which included one that was owned by Craig.
“Based on the applicable charges and interest imposed on the members, it is clear that those loans, some of which amounted to pension liberation, were made on unfavourable terms,” TPO said in a statement.
The Ombudsman concluded scheme funds were generally invested in companies that had only been incorporated a short while before the investments were made, were dormant and had been trading at a loss.
In some occasions, these were companies in which one or more individuals involved in running the scheme had, in some way, an interest.
The investments were all high-risk, unregulated and illiquid, consisting of shares in, or loans to, the various companies, TPO said.
“There is no evidence that due diligence was carried out or that ‘proper advice’, as required under the Pensions Act 1995, was taken in relation to any of the investments,” it added.
Besides failing to comply with investment regulations, Pensions Ombudsman Anthony Arter also concluded the trustees committed several breaches of trust in “failing to take steps to manage the various conflicts of interest that existed,” under the Pensions Act 2004 and the trust deed.
The trio has been ordered to repay almost £1.8mn to the scheme, together with Dalriada’s costs incurred in bringing its referral to TPO, worth £19,545.
The original trustee, Craig, will have to repay more than £10.7mn to the scheme, after the ombudsman concluded that he committed fraud on the power of investment, used scheme funds to pay companies and made payments to himself.
Arter concluded that Craig also acted outside of the scope of his powers as a trustee when he made payments to three individuals, used introducers and paid them fees far in excess of the market rate and made or arranged loans to the scheme’s members.