Bodhfryd 1967 Limited Ssas · CAS-71695-K3S9

CAS-71695-K3S9

Ombudsman’s Determination Applicant Mrs T

Scheme The Bodhfryd 1967 Limited SSAS (the SSAS)

Respondents Bespoke Pension Services Limited (Bespoke)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

Mrs T had two pensions, a deferred pension from the HBOS Pension Scheme and a personal pension scheme with Zurich.

In 2014 Mrs T received a cold call from a person offering a free review of her pension position and agreed to meet with an adviser. The adviser was a representative of CAS-71695-K3S9 First Review Pension Services (FRPS) an unregulated introducer company who visited Mrs T at her home and presented her with the opportunity to invest in a Cape Verde resort development.

Mrs T’s representative says the FRPS representative presented Mrs T with an extensive documentation pack requiring signature on various documents to:-

• Instruct a company called DLW Company Formation Services Ltd to set up a company, called “Bodhyfrd Road 1967 Limited”, a non-trading company. The company was incorporated on 11 August 2014.

• Enter into an Administration Services Agreement between Mrs T and Bespoke under which Bespoke agreed to provide administration services to the Trustee (Mrs T) of the SSAS.

• Set up a Trust Deed between Mrs T and Bodhyfrd Road 1967 Limited appointing Mrs T as the sole trustee of the SSAS.

• Enter into a Directors Service Agreement, purporting to record an employment relationship between Mrs T and Bodhyfrd Road 1967 Limited.

• Register the SSAS with HMRC for tax purposes on 11 September 2014.

• Provide Mrs T with an advice letter dated 4 November 2014, from an unregulated firm called Broadwood Assets Limited, for a fixed fee of £100 plus VAT concluding that Cape Verde was a suitable investment for the SSAS.

• Provide Mrs T with a pre-printed letter from her to Bespoke instructing it to action an investment of a specific amount to be made in “the Cape Verde investment opportunity offered by The Resort Group plc” and referring to the advice letter from Broadwood Assets Limited.

On 24 September 2014 Bespoke sent transfer requests to the HBOS Pension Scheme and Zurich. Mrs T transferred her Zurich entitlement on 29 October 2014 and then her HBOS Pension Scheme entitlement on 16 February 2015 to the SSAS and invested funds in the Resort Group in Cape Verde.

Initially Mrs T invested £67,700 into an unbuilt unit at the White Sands Resort. In November 2015, this was switched to a one-third investment in an apartment in the Dunas Beach Resort. Mrs T also invested £13,387 into a one-sixteenth investment in a different apartment at the Dunas Beach Resort.

Mrs T’s representative says that in subsequent SSAS valuation reports Bespoke have described the SSAS’ value as being a combination of the cash held in the SSAS account and the cost price of the investments (£81,087). There is no secondary market for fractional investments of this nature in Cape Verde and the cost price is not accepted to represent the true value of Mrs T’s investment. The true value is either nil or a nominal value. 2 CAS-71695-K3S9 Mrs T’s representative says that in February 2013, the Pensions Regulator issued an action pack headed “Pension liberation fraud- the predators stalking pension transfers” (Scorpion Guidance Action Pack). The guidance was primarily addressed to administrators and trustees of pension schemes holding a consumer’s pension where the circumstances of the transfer and/or features of the receiving scheme carried some of the warning set out in the Scorpion Guidance Action Pack.

Mrs T’s representative says that this guidance must clearly apply to the administrators and trustees of a receiving scheme. The receiving scheme’s administrators and trustees are equally, if not better placed to identify the presence of warning signs on a pension transfer and act to prevent consumer detriment. Bespoke were the administrators of the proposed receiving scheme and were bound to comply with the Pensions Regulator’s guidance. The representative considers that the following warning signs were present with Mrs T’s pension transfer:-

• Mrs T had received an unsolicited call.

• Mrs T had received advice to transfer a defined benefit pension and invest in unregulated products.

• The SSAS had only recently been registered with HMRC on 11 September 2014.

• The sponsoring employer Bodhyfrd Road 1967 Limited had been only incorporated on 11 August 2014.

• At the time of transfer Mrs T was not and never intended to be employed by the sponsoring employer. She was a foster carer in receipt of an allowance from the local council as and when she fostered children.

• The intended investments were non-standard, unregulated, high risk and overseas. There was a pre-existing relationship between Bespoke, FRPS and the Resort Group.

• Mrs T was required to open a Metro bank account for the SSAS.

• Mrs T was told by the unregulated advisers that she could expect very high returns better than her existing scheme. This was a significant warning sign given that Mrs T was moving away from a high value defined benefit scheme without regulated advice.

Mrs T’s representative says that as well as these warning signs Bespoke ought to have identified that there was a significant conflict of interest. Specifically, FRPS had introduced Mrs T to Bespoke and provided her with advice to transfer to the SSAS and invest in Cape Verde. FRPS was owned and directed by a director who was also a director of a company within the Resort Group structure. It was or ought to have been obvious to Bespoke that the whole transfer and investment structure was being orchestrated by the Resort Group.

3 CAS-71695-K3S9 Mrs T’s representative also says that Bespoke had a clear discretion as to which assets it allowed into its SSAS structure. Bespoke should have used its discretion to refuse to allow any investment into fractional investments as the nature of the investment structure was not “commercial property or land” and included an unacceptable risk, as:-

• There was no direct proprietary interest in the fractional investments into which Mrs T invested.

• The Resort Group required an initial payment of 100% of the investment cost up front yet at that point the dormant company through which the investment was made had only entered into a Promissory Contract. Under Cape Verde law, good legal title does not pass unless a Public Deed is entered into. The Resort Group retained legal title over the resorts enabling it to retain security for its commercial borrowing on the land, for which investors had paid the full price of the units.

• There were obvious valuation and liquidity concerns given the structure of the investment and there was no market under which a membership in a dormant UK company could be traded.

• There was a lack of diversification for any members introduced by the FRPS/Bespoke procedure.

In light of these warning signs, it is Mrs T’s view that any reasonable diligent SSAS administrator, acting in accordance with the Pensions Regulator’s guidance would have identified all of the warning signs set out above. Bespoke ought to have communicated these warning signs to Mrs T and ought to have refused her SSAS application and proposed investment.

In late 2017 Mrs T was contacted by Metro Bank who informed her that it was terminating its link with Bespoke and that she should obtain a further bank account provider. In 2021, Mrs T’s representative says Mrs T contacted her to complain about Bespoke's actions in wrongly encouraging her to transfer her two pension plans and invest them in the overseas investment. Mrs T is concerned that she has lost access to the funds that were transferred.

Adjudicator’s Opinion

Mrs T’s complaint is concerned with the level of due diligence which she and her representative believe should have been carried out by Bespoke. The representative contends that Bespoke “actioned an invalid statutory transfer request”. But Bespoke did not action any transfer request. Bespoke may have relayed the applicant’s

4 CAS-71695-K3S9 transfer requests to the transferring schemes, but it was the transferring schemes that “actioned” the requests.

Even if there was no statutory right to transfer in this instance, that did not mean that a transfer was not permitted and it is likely that there was either a contractual right or a right under the Rules of the transferring schemes to transfer or, in the absence of a right to transfer, it may have been at the provider/Trustee’s discretion, and therefore there would have been no reason for Bespoke to question why the transfers were taking place.

Bespoke as the receiving scheme would not have been in a position to have known whether the member had a trust-based or contractual right to transfer as they would not have had access to the transferring scheme rules. This was manifestly an issue for the transferring scheme provider/Trustees to satisfy themselves of. The statutory right to transfer is clearly intended as a right to be used in relation to the transferring scheme, and so is a matter between the transferring scheme and member and does not involve the receiving scheme until the transfer has been actioned.

Mrs T’s representative appears to believe that in the absence of a statutory right to transfer (and there appears to be some doubt as to whether the applicant was an “earner” or not at the time of the transfer), then any transfer should not have taken place. However, as stated above, the member would either have had a contractual/trust-based right to transfer or the right to request one (so that it would have been at the discretion of the provider/Trustees). If, therefore, the transferring provider/Trustees were satisfied that the transfer could proceed, then it would be open to the receiving scheme to accept it.

The Administrator of the receiving scheme would not have been under any obligation to check whether there was a statutory right to transfer or not. The Administrator had an obligation under the Administration Agreement for “Administering transfer payments into the Scheme” and to carry out their services according to “all applicable laws, regulations and orders which apply to the Scheme”. However, accepting a transfer, even if it was made without a statutory right, was not breaching any laws, regulations or orders.

Until the transfer has taken place, the duty of care in relation to the member’s assets lies solely with the transferring scheme provider/trustee as they hold those assets. The transferring scheme is the entity that puts a transfer into effect and so they are responsible for ensuring that any due diligence is carried out beforehand. The Pensions Regulator’s Trustee Guidance does state that Trustees of pension schemes have a responsibility to prospective members, but this is clearly a Trustee responsibility and not a Scheme Administrator one. Similarly, any responsibilities that a receiving scheme might have in relation to ensuring that transfers are bona fide would be a matter for the Trustee (that is the Applicant in this case) and not the Administrator.

5 CAS-71695-K3S9 The Adjudicator has referred to a previous Determination, where I have said, in paragraphs 35-36 of PO-16688:-

These comments are also relevant here as Bespoke had no obligation to warn of the suitability or otherwise of a SSAS.

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Ombudsman’s decision

The principal danger being warned of in the 2013 Scorpion Action Pack is pension liberation, which is not a factor in the present case. The guidance was updated in July 2014 to replace many of the 2013 warnings about pension liberation with similar warnings about pension scams.

The Scorpion Action Pack clearly envisages any pension liberation or scam taking place post-transfer, and therefore places responsibility for trying to prevent it on transferring schemes. Everything in the Scorpion Action Pack is accordingly concerned with the checks to be carried out by transferring schemes prior to transfer. This can be seen in the following extracts: “Is the scheme to which the member wants to transfer:…..”, “when processing a transfer request……”, “If…..the trustees of the transferring scheme have reason to believe that the receiving arrangement is not a legitimate occupational pension scheme they should consider carefully whether the application is validly made, and if not whether they have any duty to process the transfer…..”. In addition, there are numerous references to seeking confirmation about various issues from the “member” which, prior to transfer, can only mean the member of the transferring scheme.

The Scorpion Guidance Action Pack can therefore only be applicable to the trustees/administrators of the transferring scheme, and in particular the Trustees, as they hold the assets in trust for the scheme members and other potential beneficiaries and have fiduciary duties towards those members. This may be seen in the Trustee Guidance issued by The Pensions Regulator: “A trustee is a person or company, acting separately from the employer, who holds assets in the trust for the

8 CAS-71695-K3S9 beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members’ benefits are secure.”

There are no equivalent responsibilities in the Scorpion Action Pack for the Trustees of a receiving scheme, let alone for the Scheme Administrator of such a scheme. To suggest otherwise would be to imply that the Scheme Administrator owed some sort of fiduciary duty towards the members, and yet there is nothing in the relevant part of the Finance Act 2004 or in any case law to suggest that this might be the case. There would be no benefit in a receiving Scheme Administrator carrying out due diligence on itself and the scheme which it administers, and there is nothing to suggest that The Pensions Regulator would have intended this to be the case when it drew up the Scorpion Guidance Action Pack.

I do not uphold Mrs T’s complaint.

Anthony Arter CBE

Deputy Pensions Ombudsman 29 August 2023

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