The Pensions Ombudsman has launched a new specialist team dedicated to investigate breaches of trust, and allegations of dishonest and fraudulent behaviour by pension scheme trustees.
The new department, called the pensions dishonesty unit, was created following a string of high-profile determinations by the ombudsman where breaches of trust and the misappropriation of scheme funds were found to have occurred.
Announcing the decision, the ombudsman made reference to cases involving Norton Motorcycles, Henry Davidson and the Grosvenor schemes, which together amounted to around £18m in misappropriated funds.
The unit’s aim is to hold wrongdoers accountable and ensure they repay scheme members. While its remit overlaps with that of the Pension Protection Fund’s Fraud Compensation Scheme, any money obtained by the pensions dishonesty unit will come directly from individuals who perpetrated the fraud.
A pilot of the scheme is currently under way, with staff drawn from the ombudsman’s casework and legal departments.
Pensions Ombudsman Anthony Arter said: “A noticeable trend in recent years has been the increase in cases relating to trustee dishonesty and wrongdoing, leading to substantial losses for individual pension scheme members. The Norton determination demonstrated a change of approach for us, which not only holds trustees personally liable but also has the potential to benefit all scheme members.
“The extension of this approach to other cases involving trustee dishonesty through the new pensions dishonesty unit pilot is very significant; enabling quicker redress and the recovery of funds that may otherwise not be achieved, directly from the guilty party.”
A slew of cases
The ombudsman has oral hearings scheduled in February and March relating to two pension schemes that could fall under the purview of the pensions dishonesty unit, and recently made two further determinations relating to the Grosvenor schemes, which it is following up with enforcement action in the courts.
The trustee of the Grosvenor scheme, R Kench, saw complaints brought against him from several members alleging that he had invested their money inappropriately, leading to a loss of members’ rights and benefits.
He and his brother incorporated Pension Assist, an unregulated introducer, and met with Stuart Stone, at that time an independent financial adviser, who proposed an investment arrangement under which the Grosvenor schemes would be established and would invest in Realsave, a finance company set up by Stone’s wife.
Stone said Realsave would provide short-term finance to businesses that could not otherwise get credit, while holding goods in a warehouse as security. He said that he had access to other investments that could cover any shortfall in returns.
Kench, in his capacity as trustee, did not investigate the validity of these claims, and the warehouse turned out to be empty.
As Pensions Expert reported at the time, although Realsave had no annual returns or accounts, had received no existing investments, had lent no money, and had no contracts in place with banks, Kench’s brother told the ombudsman’s hearing that he and Kench had viewed the investment as a “game-changing opportunity to make a great deal of lolly”.
The scheme grew to have seven members, with benefits amounting to £615,000. Half of this was invested in Realsave, and 30 per cent went to Pension Assist by way of commission, though members were never informed of these details.
Stone then stopped speaking to the Kenches and was subsequently arrested, and told to repay £1,141,680 within three months or face a further seven years in prison. Instead of going to members, the money was used to meet the confiscation order issued against Stone.
The Grosvenor schemes were dissolved in 2018, but again, members were not informed.
This case followed the well-publicised issues with the Norton Motorcycles pension schemes and the prosecution of owner Stuart Garner, who was accused of transferring the assets of three pension schemes — Donnington 2012, Commando 2012 and Donnington MC, which had 227 members between them — into his Norton business.
The case lasted seven years and caused the Pensions Regulator to conduct an internal review of its approach and response.
Garner arranged for the schemes to be administered by T12 Administration, which subsequently folded after the imprisonment of two of its directors. It was replaced with LD Administration, the owner of which, Margaret Liddell, admitted to the ombudsman that she and her staff had no training or experience administering occupational pension schemes.
Dalriada was appointed as an independent trustee and took the view that, because of Norton’s precarious financial position, supporting the company presented the most realistic chance of the schemes recovering their investments.
In the event, Norton went into administration in 2020, leaving members unsure whether they would get back any of the £14m owed to them.
It was a similar case to that involving the trustees of the Henry Davison Limited Pension Scheme, whom the ombudsman found guilty of “pure maladministration”, ordering them to repay £2.4m.