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Pension transfer specialists warned against circumventing UK legislation

Clarke Willmott’s specialist financial services litigation team successfully acted for Mr W in the Financial Ombudsman Service (‘FOS’) case: DRN-4439062.

Case background

In DRN-4439062 the FOS confirmed that an authorised firm that accepts business from an introducer must meet its regulatory requirements for the activities for which it will carry responsibility.

Where a proposed transfer involves a defined benefit pension or other safeguarded benefits worth more than £30,000, Section 48 of the Pension Schemes Act 2015 requires that trustees or scheme managers check that advice has been taken before allowing a transfer to proceed.

The Financial Conduct Authority (“FCA”) rules require that advice on pension transfers or conversions must be provided by, or checked by, a pension transfer specialist who will have enhanced qualifications. Firms wishing to provide pension transfer advice also need special permissions from the FCA.

In this context, it is common for those without a pension transfer specialist and additional permissions to refer clients to firms that do. Mr W’s case considers where liability lies when referrals like this are made, but pension transfer specialists fail to understand their role and obligations.

The Client – Mr W

Mr W is one of around 8000 steelworkers who were advised to transfer out of the British Steel Pension Scheme (“BSPS”) scheme when it closed in 2017. The BSPS scandal is well documented in media and parliamentary reports.

Unlike most steelworkers, Mr W ended up transferring his pension to a qualifying pension arrangement in Malta. Mr W initially dealt with an unauthorised business in Ireland that he found online. Because the Irish business lacked appropriate FCA permissions, the Irish business referred Mr W to a pension transfer specialist at Pennymatters Limited.

Pennymatters took a light touch approach to Mr W’s file. Without preparing any sort of recommendation, they simply issued a declaration form confirming that Mr W had received the advice needed to satisfy Section 48 of the Pension Schemes Act 2015 and invoiced Mr W for this work. The Ombudsman found that a reasonable adviser would have rejected the request to provide an advice certificate. In a particularly damning finding, the Ombudsman concluded:

Pennymatters knowingly helped IPS to circumvent UK legislation. They knew the law required Mr W to receive advice from an adviser with specific UK pension transfer advice permissions and they produced paperwork which gave the impression he had received this, even though they say they didn’t advise him”.

Pennymatters defended itself by saying it had no involvement in Mr W’s end investment and were only asked to quantify potential transfer of benefits from the British Steel Pension Scheme. If that is the case, it begs the question why it thought it would be appropriate to issue a transfer advice declaration form which was then used by the unregulated introducer to process the transfer. In the context of pension transfers, in 2016 the FCA specifically warned businesses that “FCA rules apply to advice provided by FCA authorised firms and, in particular, we expect the firm to consider the assets in which their client’s funds will be invested as well as the specific receiving scheme”.

In summing up, the Ombudsman said: “Pennymatters should not have issued a transfer advice declaration without giving advice to Mr W. They carried out business in a way that wasn’t in the best interest of Mr W”.

Lessons from the case

Pennymatters Limited facilitated an unsuitable pension transfer.

Instead of simply preparing the transfer advice declaration form, Pennymatters ought to have either provided compliant advice to Mr W or refused to provide the declaration.  The FOS says that Mr W’s young age and balanced attitude to risk meant that he should been advised against transferring out of the BSPS.

Although the Consumer Duty was not in place at the time of Mr W’s pension transfer, firms were still obliged to act in the consumer’s best interest. The Consumer Duty has re-enforced those requirements. Pennymatters failed to meet either – the firm had no direct interaction with Mr W; it couldn’t have understood his needs or checked his understanding of the situation he found himself in. Pennymatters failed to put Mr W’s interests first.

How we can help

Clarke Willmott’s financial services lawyers have extensive experience in advising upon mis-sold pensions and investments, equity release, tax mitigation products, for example. We have recovered tens of millions of pounds for our clients over the past 5 years.

Please feel free to get in touch for a free initial consultation.



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