The Pensions Ombudsman (TPO) has upheld a complaint against Teachers’ Pensions (TP), in what has been highlighted as a "significant decision" by legal experts, providing clarification over the ombudsman's expectations in this area.

The complainant, Mrs G, alleged that TP did not conduct sufficient due diligence checks when transferring her pension benefits from the Teachers' Pension Scheme (TPS) to the London Quantum Pension Scheme (LQPS).

In his decision, the ombudsman concluded that TP had failed to put in place proper processes to conduct adequate checks and enquiries in relation to the LQPS and warn Mrs G of the potential consequences of transferring.

He also argued that, on the balance of probability, Mrs G would not have proceeded with the transfer were it not for this maladministration, therefore directing TP to reinstate Mrs G’s accrued benefits in the TPS, accounting for any revaluation that would have taken place since the transfer.

However, TPO clarified that, if the new trustees of the LQPS appointed by The Pensions Regulator manage to retrieve some or all of Mrs G’s pension fund of her benefits, TP shall be entitled to recover that amount from Mrs G.

Additionally, should Mrs G make a successful application for compensation from the Financial Services Compensation Scheme (FSCS), TP shall be entitled to recover that sum from Mrs G.

The devil in the details

Mrs G initially completed the application form to transfer her TPS pension, as well as two small pensions with Friends Life, to LQPS in January 2015.

However, whilst Friends Life wrote to Mrs G flagging concerns about LQPS and confirming it was unable to proceed with the transfer, TP did not flag up any similar concerns.

TP also responded to a stage one internal dispute resolution procedure, stating that it considered the checks undertaken prior to the transfer were “adequate” and it had no reason to stop Mrs G from exercising her right to transfer, as it had also received a copy of the HMRC pension scheme tax reference from the LQPS.

Furthermore, when Mrs G appealed this decision, a representative of the Teachers’ Pensions Policy Team at the Department for Education (DfE) agreed that TP should not be held culpable for Mrs G’s decision to affect a legitimate transfer, concluding that TP had applied the Teachers’ Pensions Regulations correctly.

However, TPO held an oral hearing to gather more information around the case, with evidence given by both Mrs G, and TP’s head of policy and technical, Mr Y.

Following this, the ombudsman, Anthony Arter, concluded that TP's failings amounted to "serious maladministration", directing TP to pay Mrs G £1,000 in relation to the “serious distress and inconvenience” suffered as a result.

Arter's decision highlighted a number of areas where TP had failed to conduct sufficient due diligence, highlighting the fact that Mrs G was transferring to another occupational scheme, sponsored by a geographically distant company for whom she did not appear to work, as a “clear red flag” that should have prompted further due diligence.

In addition to this, Arter pointed out that Mrs G did not complete the application form to transfer her cash equivalent to the LQPS within three months of receiving the statement of entitlement, explaining that TP was not under a statutory obligation to affect the transfer.

The ombudsman also raised concerns around TP’s use of the regulator’s guidance, noting TP's response to Mrs G’s complaint quoted from TPR’s February 2013 pack, which has been replaced by the 2014 Action Pack.

Indeed, Arter stated that there was a “surprising lack of understanding at the time of the transfer of the regulator’s expectations”, arguing that these were widely understood in the industry, as highlighted by the fact that Friends Life rejected the transfer.

“It is concerning to me that TP, by its own admission, failed to consider and implement the correct regulator’s guidance and to ask these questions," he stated.

"It is also surprising that TP appears to still not understand the process that the regulators expected trustees and administrators to follow at the time it received the transfer request in January 2015.

A significant decision for the industry

Pinsent Masons pensions litigation partner, Ben Fairhead, highlighted the decision as “significant”, noting that there has been a “careful weighing up of the steps taken by the trustees when processing the transfer and the standards that would have been expected at the time”.

“It has evidently been considered in detail including use of an oral hearing. Being a 2015 transfer, the bar has been set higher as awareness of pension liberation and scams had grown markedly from 2013 when the regulator’s scorpion campaign was first launched,” he continued.

“There remain a number of complaints like these that are taking their time to work their way through the system, with a number having been considered by the Financial Ombudsman Service in recent times too.

"It has not always been easy to draw out clear principles with some quite fact-specific determinations, but this decision gives a helpful indication of what the ombudsman is looking for."

Fairhead warned that although limitation will "increasingly become an issue for new complaints", decisions such as this serve as a "timely reminder of the risks of getting it wrong when dealing with a tricky transfer request".

He added: "The regulations that have been in place now for just over a year have caused much debate, particularly with supposedly straightforward transfers, but the flags are wide-ranging and do at least provide ample scope to prevent suspected scam transfers.

"There really should be much less scope now for transfers like Mrs G’s to happen in the current climate.”

Share Story: