Trustee ordered to pay £730k into UK pension scheme after breaches of trust

The Focus Administration Pension Scheme case was investigated by the Ombudsman’s Pensions Dishonesty Unit, which investigates allegations of serious breaches of trust, misappropriation of pension funds and dishonest or fraudulent behaviour by trustees. However, pensions expert Liam Fitzgerald of Pinsent Masons said that the determination was more notable for the emphasis it also placed on scheme governance failings.

In this case, members transferred pension benefits worth approximately £830,000 into the scheme, which the DPO described as a sophisticated ‘pension liberation’ scheme. Scheme funds were invested in companies that generally had only been incorporated for a short time, had been trading at a loss or were companies in which some of the trustee’s associates had an interest. Back-to-back property transactions, which were not registered with the Land Registry, were also involved, along with capital gains tax payments from member funds. 

The DPO set out detailed analysis of scheme governance failings, highlighting failures to comply with legal requirements and The Pensions Regulator (TPR) code of practice for defined contribution schemes. The DPO concluded that the concentration of investment in a small number of already high-risk companies displayed a reckless approach to investment within a pension scheme.

He found that there appeared to have been no suitable management of these risks through regulated advice or diversification in liquid, regulated or lower risk investments. The trustee also failed to have processes to manage conflicts of interest and did not appear to have effective controls to monitor service delivery by the administrator. 

Fitzgerald said: “The DPO’s decision reminds us that, whilst TPR’s codes are not binding, he is required to take them into account, when relevant, in determining complaints. In this lengthy determination, he scrutinised not just the alleged pensions scam at the heart of the complaint but also many scheme governance shortcomings.”

He added: “The Pensions Dishonesty Unit carried out a very thorough investigation, looking in detail at the trustee’s training records, for example. The DPO noted gaps in scheme records too – concluding, for instance, that there was no evidence the trustee had taken regulated financial advice. Although this might be an extreme case, there’s a lesson for all schemes here: trustees will want to ensure their governance records could stand up to similar scrutiny.”

Complaints were upheld against trustee Simon Williams and the scheme’s administrator, Brambles Administration Limited. The DPO found that Williams did not genuinely believe that he was acting in the best financial interests of the scheme beneficiaries and acted in “personal conscious bad faith”. He noted that Williams had passed TPR’s trustee toolkit modules on the trustee’s role and running a scheme, but then repeatedly ignored or disregarded his duties.

The Pensions Dishonesty Unit, established in 2022 in response to an increase in cases relating to trustee dishonesty and wrongdoing, aims to achieve redress and the recovery of funds directly from the party at fault. The unit encourages potential referrals from individual scheme members and independent trustees.

In this case, an independent sole trustee was appointed in 2018 by TPR, which had concerns about the way the scheme was being run. A copy of the determination in this case has been sent to TPR, and the original trustee was ordered to repay the scheme within 28 days.