TPO has directed the Ministry of Defence (“MoD”) to reinstate Mr S as a member of the Armed Forces Pension Scheme (“AFPS”). TPO found that Mr S did not have a statutory right to transfer, which MoD would have identified had it undertaken adequate checks. Since, on the facts of the case, he had no statutory right to transfer, and as the AFPS did not have the facility under its rules to make a discretionary transfer payment upon Mr S’s request, the payment of the transfer value was void.
Mr S was a deferred member of the AFPS.
In January 2013, MoD received a request from Mr S to transfer his benefits to Capita Oak Pension Scheme (“Capita Oak Scheme”).
MoD provided Mr S with his notional transfer value later in January and, on 21 February 2013, it received a letter from the Capita Oak Scheme with transfer discharge documentation papers signed by Mr S.
Over the following few months, MoD checked that the Capita Oak Scheme was registered with HMRC and received information that is was an occupational pension scheme registered in Cyprus. It also received a letter from the Capita Oak Scheme confirming that it was willing to receive Mr S’ pension benefits.
There was a delay in completing the transfer as MoD had not received sufficient proof of identification from Mr S. The necessary evidence was provided in August and MoD gave approval for the transfer on 3 September 2013, with the transfer taking place shortly afterwards.
Implementation of the “Scorpion” guidance
TPR issued new pension scams guidance in February 2013. TPO held that MoD did not take account of this guidance in relation to Mr S’ transfer, even though his transfer was not completed until several months after the guidance was published.
MoD did not update its processes to reflect TPR’s February guidance until November 2013.
Statutory right to transfer
As Mr S was transferring from one occupational pension scheme to another he could only take a cash equivalent transfer value from an occupational pension scheme to acquire “transfer credits” in the new arrangement under the relevant legislation. “Transfer credits” are defined for this purpose as rights allowed to an “earner”.
MoD did not make any checks in respect of Mr S’ employment status and, despite receiving evidence that he was on Jobseekers Allowance (as part of the proof of identity checks), failed to note that he was not in receipt of earnings. He was, therefore not an “earner” for the purposes of the legislation and, for this reason, TPO concluded that Mr S did not have a statutory right to transfer his pension into the Capita Oak Scheme.
In addition, TPO also decided there was no discretionary transfer right under the AFPS Rules.
Transfer process due diligence
Even though TPO concluded that there was no right to a statutory transfer, he also considered whether there had been maladministration in the transfer process itself. TPO generally allows around a month for providers to amend their transfer processes following changes (see Mr R (PO-24554)).
As the final decision in respect of the transfer took place over 6 months after TPR’s guidance had been issued, TPO found that not acting in line with that guidance before approving the transfer in September 2013 was maladministration on MoD’s part. Its actions fell “well below” the standard expected of a reasonable pension scheme manager.
However, despite this finding, TPO concluded that even if Mr S had been provided with the “Scorpion” leaflet, and been informed that the Capita Oak Scheme sponsoring employer was based overseas and that it was a recently registered pension scheme, on the balance of probabilities, he would still have continued with the transfer. So, if it had been a case purely of maladministration, this did not cause the financial loss claimed by Mr S.
Nevertheless, TPO noted that MoD should have acted with greater due diligence and, if it had, then Mr S would have at least been better informed of the risks associated with the transfer.
On the basis that Mr S did not have a statutory right to transfer, and there was no other legal basis for MoD paying out the transfer value, TPO upheld Mr S’ complaint and directed MoD to reinstate Mr S in the AFPS.
TPO also directed that MoD pay £2,000 for the severe distress and inconvenience caused to Mr S by its maladministration in the handling of his transfer application.
With new statutory transfer requirements having come into force back in November 2021 (see our Alert), this determination serves as a timely reminder that TPO expects administrators to update their processes promptly to reflect any change in industry guidance or legislation. This is generally within one month but “each case will be assessed on its own merits”.
The determination also raises the issue of causation. Here TPO was of the view that the member probably would have transferred even if he had received the “Scorpion” leaflet and any “red flags” warnings from further due diligence. Nevertheless, he awarded the member a top-end award for distress and inconvenience in respect of these due diligence failures, as well as for the failure to identify that he did not have a statutory right to transfer.