The Pensions Ombudsman expects pension providers to update their transfer processes, due diligence checks and member communications within one month of the new scams regulatory guidance being issued.
The new time frame, announced in arecent decision, is significantly less than the three-month period the ombudsman had previously indicated would be acceptable.
Pension providers, schemes and administrators should ensure that they have processes in place to identify and review new regulatory guidance relating to transfers and scams, and to implement any required changes promptly in light of this determination, Herbert Smith FreeHills stated.
The ombudsman’s decision refers to Mr R, a member of the Scottish Motor Auctions Ltd group personal pension plan, who had put forward a complaint against Aegon in 2017.
Where a regulatory change has been well-trailed and reflects existing good practice, you would expect administrators to update their practices fairly swiftly
Margaret Snowdon, Pension Scams Industry Group
In 2012, Mr R transferred his pension benefits to a smaller scheme administered by Greenchurch Capital. The scheme then submitted paperwork to Aegon on February 13 2013, a day before the Pensions Regulator issued its new Scorpion leaflet and updated its regulatory guidance on pension scams.
On February 15, Aegon transferred an amount of £21,461.92 to Greenchurch. However, an administrative error within the receiving scheme’s bank meant that the entire transfer value was refunded back to Aegon.
Later, the transfer was completed on March 19, just more than a month after the Scorpion literature was published.
Aegon accused of failing new due diligence rules
As result, in 2017 Mr R complained that Aegon did not proceed with appropriate checks before transferring his pension to Greenchurch. He also argued that Aegon should have known that the receiving scheme’s administrator was not regulated by the Financial Conduct Authority.
Furthermore, Mr R stated that Aegon did not act with the new due diligence expectations, which the regulator set out in the Scorpion guidance document.
The document detailed information for both providers and consumers relating to pension scams and listed several points associated with potential scams, including a warning on schemes that were newly registered with HM Revenue & Customs.
Mr R stated that Aegon failed to inform him of the risks of transferring his pension benefits to the small self-administered scheme, and said if he had known then he would not have proceeded with the transfer.
At the time, Aegon claimed that it acted appropriately and conducted adequate due diligence.
The provider pointed to previous determinations in which the ombudsman said that providers should be given up to three months to update their transfer processes following the publication of the Scorpion guidance.
The ombudsman did not proceed with Mr R’s complaint and found that Aegon had acted appropriately, agreeing that the provider was not required to have updated its transfer processes before the date the transfer was originally made.
However, the ombudsman reviewed the cases he previously determined on the issue and considered that “a period of approximately one month would generally be sufficient for a provider to put in place any procedures necessary as a result of the regulator’s new guidance”.
Where a provider cannot meet this timeframe, the ombudsman stated that he would expect it to consider suspending transfers until changes to its processes and member communications could be sought.
Ombudsman tightens providers’ timeframe
According to Herbert Smith FreeHills, this decision signals a significant tightening of the timeframe within which pension providers, schemes and administrators might be expected to update their processes in response to new regulatory guidance relating to scams and transfers.
The law firm explained that although the timeframe of one month was not significant in the context of this complaint, it might be relevant for others relating to transfers made shortly after February 2013, when the new pension scams leaflet was introduced.
“This decision also highlights the need for pension providers, schemes and administrators to ensure that they have effective systems in place to identify and respond to future regulatory guidance in this area, Herbert Smith FreeHills added.
Tim Smith, professional support lawyer at Herbert Smith FreeHills, told Pensions Expert that the new one-month deadline is “a significant shortening of the timetable”.
He said: “Previously, providers may have thought that they were in the clear because they had three months to make changes, whereas this recent determination suggests that if they made a transfer outside of that one-month window, that might be at potential risk of a successful claim from a member.”
Trustees receive positive sign from ombudsman on scam checks
Trustees and administrators must maintain the utmost vigilance against scammers, industry experts warn, despite a Pensions Ombudsman determination on a £367,601 loss to fraudsters favouring the ceding pension scheme.
Smith noted that going forward, providers will need to pick up the new scams regulatory guidance “very quickly, and also decide how to respond to it and implement those changes within a matter of weeks of the guidance being updated”.
Margaret Snowdon, chair of the Pension Scams Industry Group, is not concerned about the new timetable, since “there is no hard and fast rule” from the Pensions Ombudsman.
However, she added: “Where a regulatory change has been well-trailed and reflects existing good practice, you would expect administrators to update their practices fairly swiftly.”
