Our heading shows the stark warning to pension scheme administrators following the recent determination by The Pensions Ombudsman (TPO) in the complaint brought by Mr John Tenconi (Mr T) against the James Hay Partnership (James Hay). TPO upheld the complaint due to James Hay’s unreasonable delays and ordered that James Hay pay £43,700 (plus interest) into Mr T’s new pension plan. The case is unusual as it involved the court accepting (overruling TPO) Mr T’s argument that he would have invested his transfer value in a particular way. It is also one of the first instances of a pensions case turning on a defined contribution investor attempting to time the market to make an anticipated gain on the back of the Brexit referendum. Let us explain…

It all started back in early 2016. Mr T had cash and stocks invested with Barclays Stockbrokers in his small self-administered scheme, (the Scheme). He received notice that Barclays Stockbrokers would be closing its pension trader accounts from 30 June 2016. Mr T contacted James Hay, his pension provider on 24 March 2016 requesting that a transfer of £250,000 be made to another provider, Hargreaves Lansdown. Following that initial request, there were several calls and e-mails between Mr T and James Hay where Mr T detailed the urgency of the transfer happening before the Brexit referendum on 23 June 2016. Mr T believed (correctly) that if the UK voted to leave the EU on 23 June 2016 the FTSE 100 Index would fall dramatically, so he wanted to be in a position to re-invest in the market immediately following the vote.

Unfortunately, things did not go to plan for Mr T. Although the Brexit vote went ahead on 23 June 2016, the transfer had not been completed by that date. James Hay did not receive the cash part of Mr T’s transfer from Barclays Stockbrokers until 11 July 2016, and it was not until 19 August 2016 that the cash was transferred to Mr T’s new pension plan; the last of Mr T’s in specie seven lines of stock were not transferred until 3 October 2016. It did not help matters that James Hay already had £220,000 in cash from Mr T’s pension which it could have transferred in the meantime.

What had caused the whole process to take 8 months? Readers will be familiar with the usual reasons for transfer delays as TPO determinations are unfortunately littered with bureaucratic failures by aggrieved members and administrators. In this case, James Hay was unable to cite any fault on Mr T’s part. However, it still rejected his complaint about the transfer delay, accepted that there had been two instances of maladministration on its part and offered him £100 in recognition of this.

Mr T complained to TPO that James Hay’s delays had caused him a loss of profit. The Adjudicator considered that as there were 46 working days where James Hay did nothing to progress the transfer plus a further 29 working days where, after receiving the cash from Barclays Stockbrokers, it effectively sat on his money without reinvesting it. TPO awarded Mr T £2,000 for the distress and inconvenience caused. So far, so normal.

More interesting (but no less usual) was TPO’s rejection of Mr T’s claim for loss of the opportunity to profit from shorting the market as he had claimed he would: “unfortunately, the loss that Mr T is claiming, is neither measurable nor the exact nature of his investment within the reasonable contemplation of the parties. While in principle, losses of this nature may be recoverable, I have not seen anything to suggest that Mr T informed James Hay of the specific shares he intended to purchase in the immediate aftermath of the [Brexit] vote, that he would have been able to purchase those shares in the amount he would have wished to, what price would have been achieved, and that these specific shares were then negatively affected by the outcome of the vote, before then recovering afterwards. The lack of certainty and the presence of so many variables means I cannot conclude what actual loss Mr T has suffered (if any) or that it was reasonably foreseeable to James Hay that Mr T would suffer the losses he is now claiming.”

Mr T appealed to the High Court stating that TPO had erred in law in finding that (1) his loss was not reasonably foreseeable or not in the reasonable contemplation of the parties and (2) his loss was not measurable. The High Court agreed on both grounds and remitted the determination back to TPO. In addressing the point of measurability, the judge stated TPO had erred in law in holding that “it was necessary for Mr [T] to identify the specific shares he intended to purchase and to show that he was able to purchase those shares in the amount he wished, what price, and that those specific shares were negatively affected by the outcome of the vote” because that was “far too high a test for Mr [T] to satisfy, and he is, with respect, confusing questions with recoverability of damage with quantification of damage.”

The judge further stated that this is not a “loss of a chance” case. “Loss of a chance cases involve consideration of the chance of what a third party would do. Where the issue is what the plaintiff would have done, one has to consider the matter as to balance of probabilities.” As such, TPO determined that Mr T would have invested the full £250,000 in the FTSE 100 Index immediately after the referendum. Following the Brexit vote, the FTSE 100 Index fell immediately to 5,700, but it then recovered to 6,800 by the date that Mr T’s funds were received by Hargreaves Lansdown (ie 19 August 2016). Mr T would have made a profit of approximately £43,700 had he been able to invest at the bottom of the market. The court also ruled that James Hay should pay interest at the judgment debt rate of 8% for the period from August 2016 to the date of payment

This case is yet another warning for all pension scheme administrators to process transfer requests in a timely manner, but it also shows that if an investor had a very clearly communicated investment strategy that is frustrated by another party’s delay, the full loss can be recoverable.