small projects under the watchful eye of the mediator
The PO considered the issues of expert determinations for schemes governed by trust indentures, as well as the use of SSAS to facilitate unregulated investments.
Status of expert determinations
In a recent case (24 pages / 9.53MB PDF) Regarding an SSAS, the PO commented on the status of “binding” expert opinions in the context of a pension scheme governed by a trust deed. The OP did not accept that it would be correct for trustees to proceed based on an expert decision if they know that decision is incorrect.
The plan had two members who were both trustees. The supplier acted as a professional fiduciary.
When one of the members, MY, died, the other member, ML, complained that the professional administrators had not properly distributed the funds. The OP said there was no reason to overrule an independent expert’s decision on how scheme funds should be allocated.
Mr Y’s wife claimed a death benefit on the death of her husband in 2018, having been named on her expression of wish form as the beneficiary of any death benefit.
A complaint by ML regarding the allocation of funds was resolved on the grounds that ML and the claimant had to appoint an expert, in accordance with plan rules, to decide the amount of death benefit payable. The expert concluded that 54.8% of the fund should be attributed to Mr. L and 45.2% to Mr. Y.
Mr L disagreed with the expert – but after considering this latest complaint, the OP said there was no reason to overturn the expert’s decision. ML and the claimant, as plan trustees, were bound by the expert’s findings.
The supplier had argued that, as long as it answered the right question, the expert’s decision was binding even if it was wrong.
However, the OP did not accept that this principle applies to pension plan trustees. The PO concluded that if the trustees had concerns about an expert’s determination, he would expect them to seek clarification before proceeding, whether or not the trust deed stated that the determination of the expert is binding.
Self-directed plans and unregulated investments
SSAS have also been the subject of another recent decision (14 pages / 3.92 MB PDF), in which the PO warned suppliers against their use as a means of facilitating unregulated investments and recommended vigilance in the event of arrangements involving unregulated parties.
The circumstances of this case predate the introduction of new regulations in November 2021, which restrict the right to a pension transfer when red or orange “flags” identifying potential risks of pension scams – including when investments abroad are included in host schemes – are identified . The transfer regulations are intended to end the use of SSAS as vehicles for unsophisticated individuals making esoteric investments.
Mr L complained about the failure of his SSAS administration provider to ensure he received proper independent advice before investing in an unregulated investment which he believed might be a scam.
After meeting an unregulated pension introducer, Mr. L was persuaded to transfer his retirement savings to an SSAS in order to invest in a hotel and spa in Cape Verde. The claimant created and administered the plan and handled the transfer of the pension.
The program has invested almost £68,500 in the development of the hotel. Mr. L and the claimant subsequently requested the return of the funds he had invested, but no capital was returned.
The PO said he would only review whether the supplier had acted correctly and in accordance with its obligations. His role under the plan rules was limited to making every reasonable effort to ensure that ML had obtained “appropriate advice” and that the advice met the requirements of the plan’s trust indenture. He had no fiduciary or broader duty of care to ensure that the advice was appropriate.
There was no requirement for regulated advice, as the investment vehicle was a company limited by guarantee, and the advice that Mr L had received and signed included clear warnings about the risks involved.
The PO was also satisfied that the evidence showed that the supplier was reasonably persistent in seeking the return of invested funds.
Although the complaint was not upheld, the PO warned the supplier to beware of similar unregulated parties in the future.
The PO noted that the adviser had been linked to a number of other complaints of a similar nature against other SSAS providers, using these schemes to circumvent possibly stricter requirements placed on other types of pension schemes. The lack of regulation of companies such as this means that they do not necessarily act in the best interests of their customers, who may not fully appreciate the risk they are taking.
The supplier’s efforts to compensate for the evaluation error are sufficient
In a decision (11 pages / 2.65MB PDF) regarding an incorrect retirement quote, the PO said the complainant should have disputed the quote figures before accepting them and claiming a meaningless commutation lump sum.
Miss N complained that her pension provider underestimated the value of her plan when providing a pension quote. She opted to take an insignificant commutation lump sum of over £13,000. The provider then identified a system failure that meant the lump sum payment was less than half the actual value of the fund.
The supplier informed Miss N that he would pay her over £18,000 to correct the error and cover the resulting interest and tax penalties. He later also offered to pay her £1,000 for distress and inconvenience.
Miss N said she decided to take the lump sum due to the apparent poor performance of the fund, but had the provider not made a mistake she would have stayed in the plan to benefit from her employer’s contributions .
The PO was satisfied that the supplier’s offer to pay the backdated contributions of Miss N and her employer into a stock plan was a reasonable offer. However, Miss N and her employer refused to pay backdated contributions.
The PO said the provider had nothing else to do as it would be disproportionate to compensate for the missing employer and employee contributions, as well as the missed investment gains. The PO added that paying the correct value of the fund plus interest was an appropriate solution.
An interesting aspect of the OP’s decision is his statement that Miss N should have disputed the wrong pension quote figures before accepting them. The OP said this “would have required the supplier to carry out a detailed investigation which would no doubt have identified the error”.
Miss N said she could not have known an error had occurred because the provider had said the value of her fund could go up or down. However, the purchase order considered that a shortfall of almost 50% should have prompted Miss N to raise the issue: “normal fluctuations in the price of the shares were unlikely to reduce the value of the fund by almost half of Miss N”.