“If something looks too good to be true, it probably is”.  How many times have you, the reader, heard this maxim?

Pensions News (PN) is aware that there are probably a number of lottery winners who would be prepared to testify that they can disprove the above expression and who may condemn it as the sort of wet-blanket comment only to be expected from an overcautious prophet of doom - sometimes known as a (pensions) lawyer. 

To the fortunate lottery winners, PN would say that for every lottery winner who drops ice cubes down the vest of his opening line, there are probably 1000+ individuals who have been convinced of a “lottery win” (or the effect of one) but have gone on to experience “scam”.

More than once over the last year or so, PN has written about pension scams.  More often than not, PN has had to write about how scams are successful as well as how their success is one of the reasons for not liking them.  Sometimes, scams are fairly sophisticated, other times they are based heavily on the Nigerian scam Mark I or Nigerian scam Mark II.  At other times, scams are as simple as the advertisement referred to in an article written some time ago by the late Clive James.  The advertisement  Mr James cited was placed in America before World War II.  It was a classified ad giving no information other than a PO Box number and the following instruction in block capitals: HURRY LAST CHANCE TO SEND IN YOUR DOLLAR.   The person who placed the advertisement made a lot of money in a hurry and, but for the fact that it was a scam, PN would probably pay tribute to its creator for coming up with a simple but effective money-making idea.

The latest pension-related scam to come to PN’s attention was the subject of a recent determination made by the Pensions Ombudsman.  The scam was identified relatively late in the day and was described by one learned pensions specialist (commenting in Pensions Expert (22 July edition)), Anna Rogers of Arc Pensions Law, as a story that read like a “sitcom”. 

The scam in question involved an individual named Kench (K), another who was Kench’s brother (K2) and an independent financial adviser (IFA) named Stuart Stone.  The arrangement involved the establishment of the Grosvenor National Ltd Retirement Benefits Scheme (Scheme) by K and the establishment of an introducer company called Pension Assist by K2.  Pension Assist was not a regulated entity and it employed K.

K introduced K2 to Mr Stone who proposed the establishment of a finance company called Realsave.  Realsave would be set up by Mr Stone’s wife and the intention was that the Scheme would invest funds in Realsave.  Realsave was established, according to Mr Stone, to provide short-term finance to businesses and, as security, it would hold assets (belonging to those businesses) in a warehouse. 

In total, seven individuals were persuaded to transfer their pension funds to the Scheme so that, at its height in 2013, the Scheme had assets of £615,000.

One Scheme member, joined by two other applicants, complained to the Pensions Ombudsman that the trustee of the Scheme (namely K) had invested Scheme funds improperly.

PN will not go through all the details of the determination. PN is quietly confident in fact that you, the reader, will have appreciated that the above description constitutes a recipe for disaster for the Scheme’s members - and so it proved.

To give you, the reader, a sense of why Ms Rogers described the entire affair as a “sitcom” (a description PN agrees with - even if he does feel it constitutes a polite summary of what happened); the Scheme invested 50% of each member’s funds in Realsave, paid a further 30% to Pension Assist as a commission and then paid the remaining 20% to the member as a “fee”. 

The Ombudsman’s investigation was obstructed by a number of factors including the evident lack of a Scheme trust deed and rules (nobody, including the Scheme trustee, was able to produce a copy), the fact that the trustee, K, could not be contacted and so K2 gave evidence at the oral hearing on his behalf and the fact that Realsave was dissolved some time before a court case involving Mr Stone in 2014 - something neither K nor K2 appeared to know about.  The warehouse in which assets were supposed to have been stored (as security for Realsave) was never checked by the Scheme trustee and turned out to be empty.  In relation to the court case referred to above, Mr Stone was sentenced (in 2014), to six years’ imprisonment for fraud with a further sentence of seven years applicable where he failed to pay £1.14m. 

As you, the reader, can imagine, the Ombudsman was probably pushed as to where to begin in finding that K had acted in breach of his duty as a trustee and was guilty of maladministration.  In short, the Ombudsman found six instances of breach of trust and two of maladministration and ordered the trustee to pay back the £600k+ along with interest and sums for compensation in relation to the “exceptional maladministration causing injustice”.  A problem the members may have to face is the likelihood of there being no funds to be returned to them – by the Scheme or its culpable trustee.

Just as the Ombudsman must have wondered where to start in issuing his determination, PN wonders where to start in applying the lessons of this case, one of the more bizarre cases he has read about, to what happens in pension schemes such as the ones where he tends to advise.  First of all, PN feels it is important that managers and trustees of pension schemes have a discretion, supported by legislation, to refuse to allow a transfer to be made in circumstances where they are not confident that the receiving scheme itself is legitimate and not, as was the case in this determination, a pension liberation vehicle (a scam in other words).  Furthermore, it is important for Schemes to have procedures in place where they can carry out investigations into applications for transfers and so evidence any decision by the trustee(s) to delay or to refuse to allow a transfer.

PN then worried (PN seems to have been doing a lot of this lately) about the implications of research carried out by Aegon in which that entity revealed that the majority of adults (68% of those surveyed in fact) are unaware that in 2028, the minimum age at which one can access one’s retirement benefits (in normal as opposed to ill health) will increase from the current 55 to 57.  The minimum retirement age has been 55 since it was increased from 50 on 6 April 2010.  The Government has recently confirmed that it will draft regulations which will allow individuals to “lock in” the right to draw their retirement benefits from age 55 however PN worries (and PN is not alone in this) that the legislation may be sufficiently complex as to cause a number of people to place the procedures it advocates into the “too difficult” box.  PN is also concerned that a lot of individuals, in particular those who were unaware that the minimum retirement age will increase (in 2028) to 57, will be equally unaware of the legitimate way of preserving their right to retire at that 55.  The same individuals may be those most likely to be targeted by the scammers. There are always scammers. Those scammers will, after issuing their usual greeting of “congratulations!” (the opening words in Nigeria scams Mk I and Mk II), explain how, by transferring the monies in a pension fund to them, they can “lock in” the individual’s right to retire early and liberate or “unlock” the individual’s fund.  The liberation vehicle will look attractive – so good in fact that those listening to its description may think it has to be a winner and will sign up.  They may believe, as the members in the determination referred to above did, that the introducer making the call is regulated.  The introducer in that case, Pension Assist, was not.

PN’s hope is that those called by the scammers will hesitate long enough to take advice from a legitimate IFA.  Thankfully, there are still a lot of them.  PN hopes that the IFAs will recite the opening line of today’s edition - or words to that effect. PN’s final hope for today is that the individuals will, in spite of their disappointment at the IFA’s advice, take it.

Until next time…….