A recent Pensions Ombudsman case has shown that due diligence needs to be robust enough to uncover all the red flags, not just the ones you were looking for.
In a recent case the Pensions Ombudsman decided that a SIPP provider had carried out insufficient due diligence and risk warnings prior to allowing a transfer to a SSAS. Although some due diligence had been carried out, the fact that it was not fully aligned with the Regulator’s guidance in2017, 4 years after guidance issued by the Pensions Regulator in 2013, meant that the Ombudsman found against the provider.
Although the member could not have been prevented from taking the transfer and was insistent on the transfer at the time, it is notable that the provider was ordered to bear the full transfer value loss, together with interest at bank base rate for loss of investment opportunity, for failing in the Ombudsman’s view to provide adequate risk warnings to the member. The Ombudsman found that the pension provider should have enabled the pension scheme member to make an informed decision.
It is also notable that the Government is proposing to amend the law to require a genuine employment link for a transfer of this nature, which should serve to protect members but will also make proper risk assessment processes even more important for pension trustees and providers.
This case is a reminder that providers should put in place robust due diligence processes as we have previously stated. Proper risk management and governance is essential to try to unearth such issues. All pension providers and pension trustees should be raising issues uncovered with members who want to transfer, communicate issues uncovered and warn the member in line with official guidance.
This blog was written with assistance from Heather Musk
Another red flag was that the pensions administrator running the scheme was not authorised by the Financial Conduct Authority.