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Pensions Regulator ousts trustees of badly run scheme

Chris Hamblin, Editor, London, 6 July 2016

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The UK's Pensions Regulator has shown its teeth in a surprise intervention that demonstrates its willingness to clamp down on illegal commissions and other abuses.

The regulator recently removed Dorixo Alliance, the corporate trustee of a pension scheme, and replaced it with Dalriada Trustees when it found out that nearly £6 million of new members' accrued pension savings had been put at risk in the London Quantum Retirement Benefit Scheme. Although the scheme was an occupational one and not directly relevant to our readership as far as its composition was concerned, the action that the regulator took has universal application to pensions. Dalriada is one of the regulator's favourites for this kind of work.

Nicola Parish, the regulator's director of case management, said: "The concerns we received about the scheme highlighted worrying factors regarding its governance. This case should act as a reminder to all...pension scheme trustees and administrators to remain alert to the dangers of transferring pension savings in order to access unrealistically high returns often associated with exotic-sounding investment opportunities."

The regulator found that, as trustee, Dorrixo had a serious disregard for the obvious risks that members might be misled about the true nature of the investments held by the scheme and the risks that came with those investments. Its concerns included the following.

  • Risky and illiquid investments. The investments exhibited inappropriately high levels of risk of which members were not made aware.
  • Not enough documents. The investigators doubted whether documents actually existed in relation to some of the scheme’s investments and called into question the legitimacy of others.
  • Introducer fees. The scheme was promoted to potential new members by introducers, including cold-callers, who were paid by commission (sometimes of 30%) in breach of trust.
  • Advisors. No auditor was appointed to the scheme and Dorrixo failed to take proper advice on the investments.

The regulator received reports from both members and administrators of some of the transferring schemes which emphasised their concerns in relation to the scheme.

The Pensions Regulator employs about 500 people and spends £62 million a year; the Financial Conduct Authority, from which its CEO came, spends eight times that amount (£480 million) and employs 3,000.

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