Pensions Ombudsman rejects claim for scam compensation when trustees had no duty of due diligence

In a recent determination, the Ombudsman rejected a scheme member’s claim that the trustees should have conducted due diligence on the receiving scheme before making a transfer in in 2014, as there was no duty of care on the trustees at the time of transfer.

Mr D was a deferred member of the British Steel Pension Scheme who transferred his benefits (£41,507.33) to a SSAS in September 2014 having received advice from an unregulated firm. He had been approached unsolicited and was persuaded to transfer, to invest in fractional shares of an overseas hotel resort. The investment subsequently failed. The transfer documentation included signed copies of the Regulator’s “Scorpion” leaflet and various declarations confirming Mr D understood the risks of pension scams. 

The member alleged that the trustee failed to conduct proper due diligence on the receiving scheme before processing the transfer. Specific allegations included that the trustee should have identified the warning signs that the SSAS was recently registered, the sponsoring employer was a dormant company and there was unregulated adviser involvement and warned the member accordingly.  

The Ombudsman dismissed the complaint, finding that no legal duty of care existed requiring the trustee to conduct the due diligence, beyond the statutory requirements for processing transfers under the Pension Schemes Act 1993. Imposing such a duty would conflict with the trustee’s statutory obligation to process valid transfer requests within the prescribed timeframe. The Regulator’s guidance documents were just that and were not mandatory. The trustee had fulfilled its statutory obligations by ensuring the receiving scheme met the then legal requirements and providing the required disclosures including the Regulator’s Scorpion leaflet.

The determination is available on the Ombudsman’s website.

Comment

Although not binding on future decisions, the Ombudsman’s determination may influence further potential claims arising in relation to the period of February 2013 (when the Regulator’s guidance was published) to November 2021 when new conditions for transfers were put on a legal footing. 

The Ombudsman’s decision, which tested trustees’ conduct against the “standard of the day” raises the bar for successful member claims brought for transfers effected in the same timeframe.