Mr N v Ardonan (known at the relevant time as Kreston Pensions (Isle of Man) Limited) - 11 January 2019

Summary of determination

The complaint related to an investment in an Isle of Man cell company made by the trustee and administrator of a pension plan. The Scheme was a trust based self-directed personal pension scheme authorised by the Financial Services Authority in the Isle of Man. The investment was made on the instructions of the member’s appointed investment adviser immediately following the transfer of the member’s benefits in two UK pension schemes to the pension plan.

The member was originally contacted by an unregulated introducer based in Gibraltar who referred him to investment advisers who were authorised in the UK (but who subsequently turned out only to have authorisation to conduct insurance mediation business and not pension transfer business or to give investment advice).

The member is now unable to redeem his investment for 10 years (other than in limited circumstances) and the member considers, at best, the investment was not suited to his pension plans and he should not have been permitted to invest in the investment having regard to his risk profile as notified to the Trustee/Administrator. At worst the Member was concerned he had been a victim of a scam and his investment is worthless. The Member was not able to successfully pursue the investment adviser in the UK or the introducer for compensation.

The member argued, among other things, that:

The Trustee/Administrators owed a duty to ensure that only properly authorised and regulated financial advisers could provide advice in relation to the Plan and that they had breached this duty by allowing the investment
Trustee/ Administrators did not exercise due skill and care in establishing whether the Isle of Man cell company was an acceptable investment for the Plan and breached its duty by failing to carry out adequate due diligence in relation to the investments
The Trustee/Administrator’s processes were not robust enough, in establishing whether these types of investments were appropriate for individual members

Broadly under the terms of the trust deed the Trustee had to exercise its investment power in accordance with the instructions of the member/appointed representative unless to do so would breach the provisions of the Scheme. Such an investment had to with reference to any schedule or list of acceptable investments made available by the scheme trustee/administrator from time to time.

There were extensive disclaimers in the Administrators terms and conditions recognising that the member was solely responsible for all decisions relating to investments and keeping the Trustee/Administrator fully indemnified against decisions. The Trustee/ Administrator however did confirm that:

'the Trustee/Administrator are professional trustees and administrators who ensure that your retirement fund is managed within relevant legislation and in line with your stated investment strategy. We accept our duties and responsibilities as both trustees and administrators in full. We do not however provide or accept liability for any investment tax or legal advice in relation to your fund. Please consult your financial adviser for a broader definition.'

The Member had ticked a box in his joining documentation stating that his investment strategy was Medium Risk/Balanced.

The Deputy Pensions Ombudsman determined on the facts in this case

The Administrator owed a limited contractual duty to the member to check whether any proposed investment was consistent with the stated Medium Risk/Balanced investment strategy. It was difficult to see how an investment in the unregulated Isle of Man cell company could be consistent with that strategy. The Administrator did however obtain a signed non-standard investment form from the Member before permitting the investment containing various declarations acknowledging the high level of risk associated with investing in the cell company. It was reasonable for the Administrator to rely on the declaration made by the member in the signed non-standard investment form and take the statement from the Member’s financial adviser implying that they had the necessary authorisations to give advice on the transfer and investments in the cell company at face value. The Administrator was therefore on the facts not in breach of the limited contractual duty they had assumed in relation to the investments to ensure compliance with a Medium/Low Risk strategy
The trustee of the Plan was not subject to any investment duties to prepare a statement of investment principles and keep it under review under the Retirement Benefit Schemes Act 2000 as the Plan was exempt from these requirements as a self-directed plan. The Trustee of the Plan was not subject to any investment duty to consider suitability of investments or duty of care relating to investments under the Trustee Act 2001 as such a duty of care is inconsistent with the wording of the Trust Deed and rules of the Plan and the contractual documentation to the extent that the Trustee was required to act on member instructions
Trustee’s investment duties under general trust law were very limited under the wording of the Trust Deed. The Trustee was required under the Trust Deed governing the Plan to ensure that any investment is consistent with guidance issued by the Assessor of Income Tax in the IoM and to comply with any list of permitted investments and subject to this, to give effect to the Member’s instructions to make the investment in the cell company once he was accepted as a member. The Trustee was not however required to put in place a list of permitted investments under its investment powers or under an active duty to review this list from time to time. To the extent that there was a de facto list of acceptable investments in place (which the Pensions Ombudsman concluded there must have been) there was no requirement, to consider specifically whether the investment in the cell company should be a permitted investment in the absence of being put on notice about concerns about its suitability. It was not a breach of trust to permit investments to be made in non-standard/unregulated investments. If the Trustee had failed to follow the Member’s directions to make the investment in the cell company (which was not excluded as a permitted investment at the time) the Trustee would have been acting in breach of trust
The Trustee/Administrator owed no duty in law to establish whether the Plan was appropriate or suitable for the member or whether the chosen investment was appropriate as an investment for him (other than the very limited duty described in 1 above). The Trustee/Administrator were not authorised to give financial advice on suitability of investments or transfers by the Financial Services Authority and the Plan documentation made that very clear

For the above reasons the Pensions Ombudsman therefore did not uphold the member’s complaints against the Trustee/Administrators.