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The Audax Pension Trust Determination Notice

Standard Procedure - Determination Notice under section 96(2)(d) of the Pensions Act 2004

The Pensions Regulator case ref: C59291233/2

Introduction

  1. The Determinations Panel (the Panel), on behalf of the Pensions Regulator (TPR), met on 12 May 2020 to decide whether to exercise a reserved regulatory function in relation to the issues in a Warning Notice dated 17 February 2020. The matter was referred to the Panel by the Case Team of TPR (the Case Team) on 1 April 2020 following a period allowed for representations.

Matters to be determined

  1. In the Warning Notice the Panel was asked to determine whether to make an order under section 7 of the Pensions Act 1995 (PA 95) if it was satisfied that it was reasonable to do so in order:

    i. to secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the Scheme (section 7(3)(a));

    ii. to secure the proper use or application of the assets of the Scheme (section 7(3)(c)); and/or

    iii. otherwise to protect the interests of the generality of the members of the Scheme pursuant to section 7(3)(d).

  2. The Warning Notice also asked that:

    i. the powers and duties of the new trustee be exercised to the exclusion of other trustees, under section 8(4)(b) of PA 95;

    ii. the appointed trustee’s fees and expenses be paid out of the resources of the Scheme pursuant to section 8(1)(b) of PA 95;

    iii. the property of the Scheme be vested in, or transferred to, the appointed trustee, pursuant to section 9 of PA 95.

Determination

  1. The Panel determined that an independent trustee with exclusive powers should be appointed and the requested related orders be made. The terms of the order are recited at the conclusion of this Determination Notice. This Notice gives the Panel’s reasons for that order.

Directly affected parties

  1. The following are the parties identified by the Case Team, and agreed by the Panel, as being directly affected by the regulatory action sought in the Warning Notice:

    • Audax Management Limited (the Trustee)
    • Dalriada Trustees Limited (Dalriada/the New Trustee)

The Scheme

  1. The Scheme is a defined contribution occupational pension scheme established on 8 October 2014 with 38 deferred members which is closed to new members. It had £1,198,902.14 in scheme assets as at 31 March 2018. It was originally named the Audax Occupational Pension Trust and was governed by a Trust Deed and Rules dated 8 October 2014. (A subsequent Trust Deed and Rules dated 21 April 2015 states that the Scheme was originally governed by a Deed dated 8 October 2015. A letter from Mr Kelly on behalf of the Trustee dated 21 November 2017 amongst other matters, confirmed this to be a “drafting error” and that the date of the original Trust Deed and Rules was 8 October 2014.)

  2. The Scheme’s name was changed to the Audax Pension Trust on 26 March 2015.

The Trustee

  1. Audax Management Limited (AML) incorporated on 1 September 2014 is the current sole trustee of the Scheme and has been since its establishment. The company is active and its directors are Mr Edward Kelly (Mr Kelly) appointed a director on 11 July 2016, and Mr Houston Robertson (Mr Robertson) appointed on 22 September 2016. There were three former trustee directors, two of whom resigned in November 2016 and the third in July 2016.

  2. Mr Kelly is also a director of Curzon Capital Holdings incorporated in November 2016 alongside two other directors, Lawrence Crockford (Mr Crockford) and Paul Francis Dugan (Mr Dugan). Mr Kelly is also a co- director of another company with Mr Crockford.

Principal employer

  1. The Scheme employer was Refined By Limited (company registration number 08983140) incorporated on 7 April 2014 whose business is said to be information technology services. Refined By Limited was struck off the Companies House register for failing to file accounts and dissolved on 27 February 2018. Although the Scheme’s Trust Deed and Rules refer to the “principal company,” the Case Team submits there is no clear reason why this is so and that the company, Refined By Limited, acted as ‘principal employer’ to the Scheme. Its sole director and sole shareholder was Mr Benjamin Muschamp (Mr Muschamp).

  2. TPR’s records on the Scheme were updated to reflect that the Scheme employer had been dissolved but no other change or update was made. The Scheme has not been wound up despite the dissolution of the principal employer which should have triggered a wind up of the Scheme. The Case Team is not aware that any steps have been taken to wind up the Scheme.

Scheme administrator

  1. The Scheme’s first administrator is listed in TPR’s records as being Masons Pension Administration Ltd (Masons) from 14 October 2015. However, Masons was not incorporated until 4 March 2016. In the second Scheme Trust Deed and Rules dated 21 April 2015 Gallium Fund Solutions Ltd (Gallium) is shown as the Scheme’s administrator. In correspondence sent to Scheme members Masons stated that it “took over administration” of the Scheme “in May 2016”. Masons was also the Scheme’s administrator for the purposes of section 270 of the Finance Act 2004 (the FA 04).

  2.  In February 2017 Masons wrote to all trustees of the schemes for which it was administrator to inform them of its de-registration by HMRC. On 10 October 2017 Masons was dissolved by the Companies House Registrar. TPR’s records for the Scheme were not updated until 20 December 2017 when an amendment was made to reflect that Masons had ceased to be administrator to the Scheme. The Scheme’s records were further updated on 7 February 2018 to indicate that the Scheme did not have an administrator appointed.

  3. Subsequently Mr Kelly confirmed in various statements to TPR, and to Scheme members, that no replacement scheme administrator had been appointed despite the statutory requirement under the FA 04 to have one.

Scheme investments

  1. The Warning Notice sets out the Scheme’s investments as at 31 December 2016 as stated by Mr Kelly to be as follows:

     Holding Value  % 
    Granita Wealth Fund £729,000 64%
    B(L)PF1 Ltd £277,000 24%
    Lawthority Ltd £100,000 9%
     Cash  £33,000  3%
     Total  £1,139,000  100%
  2. Ganita Wealth Ltd is a Wealth Management Company registered in the UK with the FCA (number 597259). It has two directors: Bijesh Babu and Rajesh Nair.

  3. Ganita Wealth Ltd is stated to have acted as investment adviser to the Scheme but also as fund manager as Scheme funds have been invested in Ganita Wealth Fund Ltd – an investment company based in the British Virgin Islands.

  4. The Warning Notice indicates that Lawthority is currently trading but the current value of the Scheme’s investment in this company is unknown. It has two directors including Andrew Colin Neal. No direct enquiries have been made with Lawthority by the Case Team regarding this investment, but a Certificate and Conditions document obtained by the Case Team only accounts for £10,000 of investment in Lawthority, rather than £100,000 as suggested in the table provided by Mr Kelly.

  5. As regards BFPF1 Ltd, the Warning Notice also indicates that limited information is available on this investment. However, email correspondence between Mr Andrew Neal (of Lawthority) and Fairhurst Accountants in which various investments, including in BFPF1 Ltd, are discussed states that “provisions will be required to write these down to Nil”.

  6. Contrary to the information above, in November 2017 Mr Kelly stated (amongst other things) that the Scheme had assets of “£1,272k invested as follows:

    Ganita Wealth Fund (listed) £672k Alternative £387k
    Specific investments at the request of one member £213k”

  7. The Scheme’s assets are stated to be £1,198,902.14 as at 31 March 2018.

Investment adviser

  1.  In April 2016 the Trustees of the Scheme had entered into an agreement with Ganita Wealth Fund (GWF) in which GWF and an FCA regulated company, Met Facilitites LLP, were described respectively as ‘Investment Adviser’ and ‘Investment Manager’. In May 2017 both these entities sent a letter to the Scheme terminating their services with the Scheme for alleged non-payment of invoices.

Background to the request

  1. The Warning Notice sets out the following background in relation to the Scheme.

HMRC notification

  1. HMRC notified the Trustee on 27 January 2017 that the Scheme’s registration would be withdrawn with effect from 17 March 2017. HMRC issued the notification further to section 157 FA 04 which permits HMRC to withdraw registration from schemes where the appointed scheme administrator under section 270 FA 04 is “not fit and proper”. HMRC is required to notify the scheme if that is the case. If a scheme is de- registered it loses the valuable tax benefits provided by a registered pension scheme such as income tax and capital gains tax relief.

  2. The Case Team contacted the Trustee on 2 February 2017. In response to the Case Team Mr Kelly said that the employer’s intention following the HMRC notification was to “transfer all members and assets” to a different pension scheme, Ganita Wealth Pension Scheme, and it would then need another three months to formally wind up the Scheme. Mr Kelly asked TPR to “agree to this timetable”.

  3. In its letter of 2 February 2017 the Case Team also highlighted the impending master trust authorisation regime under the Pension Schemes Act 2017 which would introduce a prohibition on operating a master trust scheme without authorisation by TPR, and suggested that the Trustee might wish to obtain legal advice. The response from Mr Kelly “confirmed” that the Scheme was not a master trust and never claimed to be one.

Section 72 requests

  1. The Case Team issued a statutory notice dated 16 February 2017 pursuant to section 72 PA 04 requesting further information about the Scheme. The response by the Trustee was unsatisfactory and a further request was issued. This elicited some of the information including the Trustee providing TPR with a non-compliant Chair’s Statement, it did not include a significant amount of the information that was required to be included in it by law.

  2. The Trustee’s responses to these enquiries raised concerns in the Case Team regarding the Trustee’s knowledge and understanding. The Case Team subsequently learned that there had been a telephone conversation between HMRC and Mr Muschamp, then director of the sponsoring employer, regarding the proposed de-registration. This was followed up in writing by an email to Mr Muschamp from HMRC dated 17 February 2017 in which HMRC confirmed that appointing a new section 270 scheme administrator that HMRC considered “fit and proper” would allow the Scheme to continue. Alternatively, assets and members could be transferred to a new scheme.

  3. HMRC had also stated it was up to the Trustee how to proceed. HMRC confirmed the deadline for making an appeal against the Scheme’s de- registration was 17 March 2017 and that if an appeal was made the “clock” would effectively be stopped. HMRC stated that it was prepared to work with the employer to secure the transfer of the Scheme to a compliant scheme administrator.

  4. Further requests were made by the Case Team and further responses provided by Mr Kelly, on 11 April 2017 and 13 April 2017, in which he stated that the current administrator (Masons) had lodged an appeal against de-registration, that talks were ongoing with HMRC to appoint a new scheme administrator and in the light of that, the Trustee would not be pursuing the option of transferring members and assets out of the Scheme. The response also confirmed that no new members had been accepted to the Scheme and that no members had been transferred out.

  5. On 21 November 2017 Mr Kelly on behalf of the Trustee provided further information to the Case Team (the November Letter). As well as providing investment information, it explained that Mr Robin Glaze had been appointed to assist with discussions with HMRC and to provide “general assistance” to the Scheme given “it had not yet been possible” to appoint a new scheme administrator (including in liaising with TPR). The letter also explained that the Trustee was in “discussions” with HMRC, adding that a new administrator had been “identified” but not yet appointed because the Trustee was “waiting for clearance for the appointment from HMRC”, that “no formal decision had been made to wind up the Scheme”, and that the Scheme was not accepting new members. Further, the letter said that it had previously received advice that the Scheme was not a master trust scheme for the purposes of the Pension Schemes Act 2017, and it had “asked for further advice on the matter”. In its Warning Notice the Case Team states that it has never been contacted by Mr Glaze in respect of the Scheme.

  6. On 22 January 2018 HMRC confirmed to the Case Team that an appeal against the Scheme’s de-registration had been lodged which had the effect of stopping the clock on the de-registration process. As at the time the Case Team issued the Warning Notice in February 2020 the outcome of the appeal lodged against de-registration of the Scheme was still not known.

Discussion of possible administrator / trustee appointment

  1. In May 2018 Mr Kelly contacted Dalriada with a view to appointing it to the Scheme as administrator.

  2. Dalriada expressed concern to the Case Team about the Scheme and its potential use as part of a pension “scam” based on material found online. On 24 August 2018 Dalriada requested to speak with the Case Team before ”moving things forward”’ to which the Case Team responded that there were statutory restrictions on what information the Case Team could provide. The Case Team indicated that it could offer no opinion or advice on whether or not Dalriada should become involved with the Scheme.

  3.  At the same time the Case Team took the view that the communications received from Mr Kelly and Dalriada did not constitute an application to seek the appointment of a new trustee pursuant to section 7(5A) PA 95 (the provision which allows a trustee, manager or employer of a scheme to ask TPR to appoint a new trustee to the scheme), nor did it meet any of the conditions set out in section 22 PA 95 (for the appointment of an independent trustee in situations of insolvency).

  4. On 12 July 2018 HMRC informed the Case Team that it had no evidence that any members had been transferred out of the Scheme. HMRC also confirmed to TPR first in July 2018 and then again in April 2019 that Mr Glaze had written to them stating that “The majority of the assets will be invested in funds managed by Ganita Wealth Ltd. The remainder of the funds will be invested in alternative investment scheme through - Lawthority and BPLF1.” By the same email in April 2019 HMRC confirmed and supplied the Case Team with copies of a bank transfer (dated 21 June 2016) showing a transfer of funds (£574,000) from Audax Pension Scheme (sic)[1] to Ganita Wealth’s HSBC bank account in Bermuda.

  5. Between 6 September 2018 and 20 December 2018 the Case Team was approached repeatedly by Mr Kelly about appointing Dalriada to the Scheme. As the Case Team had concluded that there was no request to appoint an independent trustee it was unable to provide any assistance and reiterated that “Unfortunately at this stage TPR is unable to provide any further information to you. You will need to undertake your own due diligence and obtain advice in relation to the potential appointment of an independent trustees to the scheme.”

  6. In a communication on 20 December 2018 Mr Kelly explained that he had “inherited unknown issues” when appointed to the Scheme; that there were “no administrators, no Investment Managers (previously Ganita Wealth) no bank account and no Sponsoring Employer”; that he had contacted Dalriada following a referral and saw “no other way forward other than for them [Dalriada] to step in and accept the engagement in order to wind up Audax and transfer members funds to another platform of their choosing. I therefore, urgently call upon you, to assist me, to try and bring the Audax issues to a successful resolution.”

  7. On 10 April 2019 HMRC emailed to say that there had been “no mention of a potential new scheme administrator since [April 2017] as the current trustee was looking to wind the scheme up and move members to other schemes”. HMRC’s email also confirmed to the Case Team that there had been early engagement with Mr Muschamp in April 2017 who had suggested that the employer was looking to appoint Ganita Wealth Ltd as administrator to the Scheme but that “that went quiet” and Mr Glaze took over communications with HMRC in respect of the Scheme. HMRC’s email also confirmed that the Scheme had not yet been de-registered.

  8. From 15 January 2019 to 18 April 2019 various exchanges passed between Mr Browes of Dalriada, Mr Kelly and the Case Team in which Mr Kelly continued to press for Dalriada to discuss the Scheme with the Case Team. In reply, the Case Team reiterated that it was unable to take authority from Mr Kelly. The Warning Notice explained that this was because Mr Kelly “did not have the right to provide consent for the Case Team to disclose information received from third parties such as whistle blowers to Dalriada”.

  9. On 20 May 2019 Mr Kelly stated that “we have been unable to appoint another administrator due to no one wanting to take on this scheme”. Mr Kelly again tried to give authority for the Case Team to discuss the Scheme with Dalriada. The Case Team responded to Mr Kelly on 20 May 2019 asking which administrators the Trustee had approached and to set out the reasons given as to why they would not take on the appointment. The Case Team further explained to Mr Kelly that it is the Trustee’s responsibility to manage day to day operations such as transfer requests if they do not have an administrator appointed; the fact that the Scheme does not have an administrator is not a satisfactory explanation for failing to comply with such day to day operations. The Case Team requested an explanation of what advice the Trustee had taken to ensure it was continuing to comply with day-to-day scheme operations, such as acceding to transfer requests.

  10. Mr Kelly emailed the Case Team in response on 22 May 2019 including the following: “Can you please just confirm that what you are saying, is that it is legal and I am entitled, to act as administrator as well as Trustee, in the absence of an administrator?” This query was raised despite the fact that Mr Kelly had apparently been “awaiting definitive legal advice” as far back as 21 December 2017 and on 11 May 2018 had “been advised it’s not possible to provide accurate valuations without an [administrator]”.

  11. Mr Kelly further explained he would not be able to answer the questions posed by the Case Team in the email sent on 20 May 2019 by the deadline as he was away until 5 June 2019 and again asked that the Case Team speak with Dalriada “in the hopes that given their experience and knowledge, they might be in a position to assist in sorting out the issues with Audax.”

  12. On 23 May 2019, the Case Team repeated the request for the following information to be provided by Mr Kelly by an extended deadline of 10 June 2019:

    i. A list of which administrators he had contacted together with supporting written evidence such as correspondence with those entities detailing the reasons they provided for not wanting to be appointed to the Scheme; and

    ii. Written evidence of any advice taken to ensure he was continuing to comply with day-to-day operations such as transfer requests.

  13. No response was received by 10 June 2019. As a result, a statutory notice under section 72 was issued to the Trustee by the Case Team on 19 June 2019 with a deadline of 26 June 2019 to respond. The statutory notice requested the same information as before, but also asked for evidence of correspondence with the pension administrators that had declined to take on the Scheme.

  14. Mr Kelly responded on 27 June 2019 by email stating that “I am just updating you as to the current situation with Audax. I am currently in talks with and corresponding with Deloitte’s in Belfast and between us, we may have finally found a resolution to solving Audax’s issues. Once we have agreed on and finalised the best way forward, I will revert to you in relation to same. I trust this is to your satisfaction”.

  15. The Case Team responded on the same day, explaining that the response did not comply with the section 72 statutory notice (and therefore, constituted a breach of that provision). An extension of time to respond by 28 June 2019 was given. Mr Kelly responded on 28 June 2019 explaining that Dalriada was the only ‘administrator’ that had been approached. No evidence of other administrators having been approached and declining to take on the Scheme was provided.

  16. On 17 October 2019 the Case Team received an email from a senior manager at Deloitte LLP stating “We have undertaken an initial meeting with the Trustee, who is seeking to put a plan in place to ensure the proper stewardship of scheme funds and management of member benefits”, and asking whether TPR would be supportive of Deloitte undertaking “this engagement in a governance role”, whether there were any reasons not to proceed with the engagement and whether TPR would be agreeable to a meeting or call to “agree the actions required for the Scheme”. The Case Team’s response the same day stated that they were not able to “provide clearance, sanction or approval of appointments to Occupational Pension Schemes”.

Master Trust authorisation under the Pension Schemes Act 2017 (PSA 2017)

  1. Mr Kelly stated in an email to the Case Team dated 9 February 2017, “For clarity, we would like to confirm that we are not a master trust and to the best of my knowledge we have made no claim to be so.” The Case Team again wrote to Mr Kelly on 6 November 2017 explaining how the Scheme fulfilled the definition of being a master trust to which he responded on 21 November 2017 stating that such conclusions reached by the Case Team are “different from advice we have previously received”. No detail beyond that statement has been provided and no response was received to a request from the Case Team in January 2018 to discuss the Scheme’s preparation for the advent of master trust authorisation.

Member concerns

  1. The Warning Notice details complaints received from eight Scheme members between March 2017 and September 2019, four of which are set out in some detail. A key concern was that transfer requests had been declined by the Trustee, who alleged that the requests could not be actioned as the Scheme did not have an administrator.

  2.  The first member had transferred £12,000 from Phoenix Life to the Scheme in 2015 having found the Scheme through the internet. This member did not receive any paperwork specific to his funds from the Scheme following the transfer, but did receive some booklets with general information regarding the Scheme. His concerns were heightened when he repeatedly tried to inform the Scheme of his change of address but got no response. He had used the number obtained from the Scheme’s website and an email address that is also registered with TPR “info@audaxpension.com” to no avail. The Case Team contacted the member on 31 May 2019 to see if the concerns had been resolved but received no response.

  3. A second member contacted TPR on 26 July 2017 expressing concerns after having transferred his pension savings from another scheme to the Scheme. He had joined the Scheme as he had reached an age when he was entitled to a tax free lump sum of 25% of his savings (Lump Sum) and his financial adviser put him in touch with a different financial adviser called Paul Dugan (Mr Dugan), who had come to his home and completed paperwork to transfer his funds to the Scheme. The member received confirmation from his private pension provider that they had transferred the funds to the Scheme but he did not receive any paperwork from the Scheme or the Trustee.

  4. On 16 April 2018 this member provided the Case Team with documents and correspondence showing that the member joined the Scheme following a transfer request signed by him on 11 August 2016 and sent to the transferring scheme by Masons on 16 November 2016 in which he transferred £92,782 in pension savings to the Scheme.

  5. When this member requested the Lump Sum amount, he received a letter from Mr Kelly on 24 May 2017, which stated that “HMRC decided for whatever reason and nothing to do with our pension fund that our recently appointed Pension administrator, Richard Bohan of Masons Administration was no longer qualified to act in that capacity”. Mr Kelly also claimed that he was unable to “commit to a payment date until [he] was certain that payment could be made” and was trying to “appoint another trustee as signatory whilst he waits for HMRC to approve a new pension administrator to the Pension Fund”. Further requests for confirmation of the fund value made to Mr Dugan went unanswered.

  6. Mr Kelly wrote to this member on 13 July 2017 stating that his pension savings in the Scheme were invested in the “Ganita Wealth Fund” and its value was then £96,600.00, but that this was “an indicative valuation and not actuary based”. Mr Kelly said the “fund will be valued at the end of June with valuations being available towards the end of July at which point you will be contacted again”. The member made further enquiries regarding his savings and having not received a response by 26 July 2017 the member contacted TPR. When the Case Team spoke to the member on 3 April 2018 the member had received a valuation of his pension savings in the Scheme in July 2017 and finally received a Lump Sum payment out from the Scheme in August 2017.

  7. In November 2017 this member decided to request a transfer out from the Scheme of his remaining funds to an alternative pension scheme. Mr Kelly responded to this transfer request by email on 22 November 2017 stating that the Scheme was “without an administrator and therefore it is not possible to effect a transfer however we are very close to appointing one vis-à-vis who will be able to transfer your pension”. Mr Kelly also stated that his “funds are safe and being looked after by Ganita Wealth, the investment management of Audax”. On 12 June 2019 the Case Team contacted the member who confirmed that the transfer he had requested had still not taken place. He also stated that he had been contacting Mr Kelly every few weeks to find out about the transfer and Mr Kelly had told him that it was “tied up with HMRC” and “an administrator was still not in place”.

  8. A third Scheme member contacted TPR in September 2017 to state that he was concerned about the whereabouts of his Scheme funds and about the fact that the Scheme’s administrator had been struck off by the Registrar of Companies. His attempts to transfer his pension fund out of the Scheme had not been successful. This member transferred his two private pensions worth £13,939.76 to the Scheme in September 2015 following a “pension review”. He received a confirmation certificate from Gallium Fund Solutions (the Scheme’s first administrator) and then “everything went quiet”.

  9. This member’s attempts to contact the Scheme, especially after he had noted Masons had been dissolved by the Registrar of Companies in July 2017, were also unsuccessful. This member supplied the Case Team with copies of correspondence he had with the Pensions Advisory Service and Mr Kelly. In correspondence dated 22 November 2017 Mr Kelly claimed that the Trustee was having difficulty processing transfers due to the lack of an administrator, but that he was trying to work with HMRC to arrange a transfer of all members and their assets to an alternative scheme. In December 2017 Mr Kelly confirmed that the member’s pension savings in the Scheme totalled £13,827.07 and that the transfer out to another scheme could proceed but that a 1% transfer fee would be applied reducing the value of the transfer to £13,688.80.

  10. Following exchanges between the member and Mr Kelly in which Mr Kelly claimed to be trying to appoint an administrator on 22 December 2017 the member indicated that he was prepared to remain with the Scheme to allow the Trustee to appoint a new administrator so long as that was achieved within a reasonable period.

  11. The Case Team contacted the member again in March 2018 to get an update on his transfer request but were told Mr Kelly had not replied to any of his recent emails after he had registered an official complaint with The Pensions Ombudsman; and confirmed that transfer of the member’s assets to an alternative scheme had still not taken place.

  12. A fourth member of the Scheme contacted TPR via his financial adviser (the IFA) on 15 February 2018 stating that the member was having difficulty with receiving a correct valuation. He had made a request to transfer out his pension savings from the Scheme but was told by Mr Kelly that this was not possible until a new scheme administrator had been appointed. The IFA said he also had concerns with Lawrence Crockford (Mr Crockford) who had recommended the transfer of the member’s pension funds of approximately £180,000 to the Scheme in September 2015. The IFA reported that the member said that he “received no paperwork” following the transfer. Furthermore, when the member turned 55 around September 2017, he had sought a Lump Sum payment from the Scheme but despite having “signed forms”, no such payment had taken place.

  13. This IFA later provided to the Case Team a bundle of correspondence in relation to the member from which the following was evidenced: firstly that the value of the amount the member had transferred into the Scheme was £166,768; in less than a year, the value of the pension savings had dropped to £160,431.71. The correspondence from the IFA also included exchanges that one of his colleagues (IFA2) had been having with Mr Kelly in relation to the Scheme which dated from November 2017 to March 2018 in which Mr Kelly was repeatedly asked for more information about the member’s pension valuation and the location of where the pension savings had been invested to no avail.

  14. TPR received a formal complaint about the Scheme directly from this fourth Scheme member on 18 January 2019 stating that “the repeated message I have received is that until a new administrator has been appointed I will not be able to gain access to my pension. Furthermore I have also been told, I cannot receive a valuation or any real reassurance the money is safe until this has been done”; and that Mr Kelly had stated that he was in talks with Dalriada “but both HMRC and the Pensions Regulator are holding up a final decision”.

  15. The complaint contained further correspondence between Mr Kelly on behalf of the Trustee and the two IFAs in which the following statements were made by Mr Kelly:

    i. on 30 January 2018: that Scheme monies “currently sit in a bank account controlled by Ganita Wealth Limited;”

    ii. on 5 March 2018: that collating the information requested was “difficult” as the Scheme currently had no administrator and was working with “HMRC and the Pensions Regulator to resolve the situation”;

    iii. on 16 March 2018: that the “funds are currently held by Ganita Wealth” and that he was “waiting a current valuation”;

    iv. on 9 May 2018: that he had been advised that only a “qualified administrator” can provide valuations or initiate transfers. He also went on to ask whether the IFA’s firm would act as administrator to the Scheme, to which IFA2 responded on the same day that scheme administration was not a service they provided;

    v. between 11 May 2018 and August 2018: that he is not qualified to provide valuations, that he was having trouble getting anyone to take up the post of administrator to the Scheme but “was in discussion with a prominent firm of [administrators] …and… are currently considering the engagement” and hoping “Neil Copeland in Dalriada” would take up the role;

    vi. on 27 October 2018: that the member’s “pension fund is safe and it is in Ganita Wealth Fund”

  16. The exchanges between Mr Kelly, the Scheme member and the IFA continued until June 2019 and still no transfer had been made as requested by the member. Mr Kelly continued to give assurances that the money was “still there” and that he was trying to get Dalriada appointed.

  17. The correspondence also included correspondence between the IFA and GWF on 21 February 2018 stating that while GWF had been the investment advisers for the Scheme, this role had been “terminated” on 18 April 2017 and that GWF “held no remaining capital” in respect of the Scheme. This email also claimed that GWF “did not have visibility to members records”.

  18. The Warning Notice states that there is no evidence to support or refute the assertion that the money invested in GWF could be returned to the Scheme as cash or paid out to members on the instructions of the Trustee, AML.

  19. Four further members of the Scheme contacted TPR, complaining about a lack of communication from the Trustee and/or transfer requests of pension savings.

  20. The Case Team is not aware of the Trustee’s other director, Mr Robertson, making any attempt to contact, respond or communicate with any of the members who contacted TPR. All correspondence by the Trustee appears to have been conducted through Mr Kelly.

Other matters

  1. On 16 February 2017 and 28 June 2019 the Case Team requested information from the Trustee under section 72 PA 04. On both occasions a partial response was provided by the Trustee, once within the deadline and on the other occasion in breach of it. Neither statutory request was answered fully or to the satisfaction of the Case Team.

The arguments in favour of appointing an Independent Trustee

  1. The Case Team submits that it is reasonable to request the appointment of a New Trustee to the Scheme in order to:

    i. secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the scheme - section 7 (1)(a) of PA 95;

    ii. secure the proper use or application of the assets of the scheme
    – section 7(1)(c) of PA 95; and/or;

    iii. protect the interests of the generality of the members of the scheme – section 7(1)(d) of PA95.

Knowledge and skill

  1. The Case Team submits that the Trustee lacks sufficient trustee knowledge and understanding to continue to act as trustee of the Scheme. The Case Team relies on the following grounds:

Failure to take appropriate action when given notice of HMRC’s intention to withdraw registration of the Scheme

  1. Upon notification by HMRC on 27 January 2017 that the Scheme’s registration would be withdrawn with effect from 17 March 2017 the Trustee could have avoided the risk of de-registration by appointing a new section 270 Administrator timeously. Paragraph 7.1 of the Scheme’s Trust deed and Rules dated 21 April 2015 states that the Trustee is responsible for appointing the section 270 Administrator. Alternatively, the risk to members arising from any de-registration could have been avoided by transferring members to a new pension scheme and winding the Scheme up. Despite Mr Kelly’s statements in February 2017 on behalf of the Trustee that one of these two options would be pursued, neither happened.

  2. The Case Team notes the email dated 17 February 2017 between HMRC and Mr Muschamp, in which HMRC informed Mr Muschamp that the Scheme would be able to continue if the Trustee appointed a new section 270 Administrator that met HMRC's Fit & Proper requirements. HMRC clarified that it was up to the Scheme’s employer and the Trustee which option they chose to pursue (i.e. transferring the members to another scheme or appointing a new administrator) but in either case they would need to consult with HMRC and provide copies of any revised paperwork before proceeding. Notwithstanding this, the Case Team submits that the Trustee should have understood that HMRC does not offer “clearance” to trustees of occupational pension schemes in respect of proposed appointments of section 270 Administrators. Therefore, the Case Team did not consider the reason given by Mr Kelly that he was awaiting “clearance” from HMRC/TPR to be a legitimate explanation for the failure to appoint a section 270 Administrator to the Scheme.

  3. The Case Team submits that the failure to appoint a new section 270 Administrator is due to the Trustee’s lack of knowledge and understanding. If a scheme is de-registered it loses the valuable tax benefits provided by a registered pension scheme such as income tax and capital gains tax relief. Despite this risk, the Trustee failed to take appropriate steps to mitigate or remove this risk leaving the Scheme members at risk if HMRC had proceeded to de-register the Scheme.

The Trustee’s inability to distinguish between roles to be performed by a section 270 Administrator and an administrator that is appointed to complete trustee obligations (Scheme Administrator)

  1. In addition to the requirement to appoint a section 270 Administrator, the Case Team points to paragraph 7.2 of the Scheme’s Trust Deed and Rules which entitles the Trustee to appoint “clerical and executive officers or staff” for the “proper administration and management of the Scheme”. The Case Team asserts that this authorises the Trustee to appoint such individuals or entities to complete trustee obligations such as storing, maintaining and safeguarding data about the pension scheme and to manage the day to day administration of the scheme such as responding to transfer requests. The Warning Notice refers to this role as a “Scheme Administrator” as distinct to the section 270 FA 04 requirement.

  2. The Case Team submits that the Trustee failed to distinguish between the two roles of a section 270 Administrator and a Scheme Administrator. The Case Team concludes that the reason for the failure was the Trustee’s lack of knowledge and understanding.

Failure to act on members’ concerns and to comply with Transfer obligations

  1. The Case Team highlights the fact that the Trustee had not only repeatedly failed to make lump sum payments requested by Scheme members who had reached an age when they were entitled to a tax free lump sum of 25% of their savings (Lump Sum), but also incorrectly informed members and stakeholders that such requests were not possible without an administrator. Furthermore, some of these Scheme members were told by the Trustee that TPR and HMRC were holding up the appointment of an administrator which the Case Team maintains was not true. The Case Team submits that these statements were borne out of the Trustee and Mr Kelly’s lack of trustee knowledge and understanding.

  2. The Case Team states Mr Kelly failed to familiarise himself as director of the Trustee with both the relevant legal obligations in respect of CETVs and the Scheme’s Trust Deed and Rules. As such there has been a failure by the Trustee to adhere to its transfer obligations. The Case Team states that under sections 93A, 94(1), 95(1),(1A), 98(1), 99(2) of the Pension Schemes Act 1993 and regulation 6 of the Occupational Pension Schemes (Transfer Values) Regulations 1996, if a member of a scheme makes an application in writing (to the trustee for a cash equivalent transfer value (CETV), the trustee must within one month of the member's application provide the member with the value of their CETV so that the member knows how much of their savings fund could be transferred to another pension scheme.

  3. The Case Team submits that the Trustee failed to comply with this statutory obligation. The Case Team reiterates that the obligation to implement a transfer request ultimately rests with a scheme’s trustee and the failure of the Trustee to appreciate that further supports the need for a new trustee to the Scheme.

Failure to obtain appropriate advice

  1. In the correspondence exchanged with the Trustee, the Case Team recommended on several occasions that the Trustee seek appropriate professional advice to ensure it was complying with its various duties as trustee of the Scheme. The Case Team submits that despite these recommendations, Mr Kelly and the Trustee failed to seek appropriate advice, further demonstrating a lack of trustee knowledge and understanding.

  2. The Case Team states that the fact that the Trustee did not take appropriate advice led to various failures as follows: the failure to understand the distinctive roles of a trustee, a section 270 Administrator and a Scheme Administrator; the failure to appoint a section 270 Administrator to prevent the Scheme’s de-registration by HMRC; the failure to otherwise appoint a Scheme administrator; the lack of effective trusteeship of the Scheme in that Scheme members’ requests for transfers were not (and have not since) been processed; requests for tax- free Lump Sums were not paid to the Scheme members who requested them; and following dissolution of the Scheme’s principal employer (and no replacement), the failure to initiate wind up of the Scheme as required by the Scheme’s Trust Deed and Rules.

  3. The Trustee also failed to secure the services of a properly qualified investment adviser after GWF and Met Facilities LLP ended their relationships with the Scheme.

  4. Had appropriate advice been obtained at the appropriate time by the Trustee these failures might have been avoided. The Case Team submits that as a consequence of these cumulative failures the Trustee failed to provide effective trusteeship of the Scheme.

Investment concerns and failure to comply with the Occupational Pension Schemes (Investment) Regulations 2005 (Investment Regulations) and other statutory requirements

  1. The Case Team raises concerns that the Trustee has shown a lack of effective oversight of the Scheme’s investments, including a concerning lack of clarity as to where exactly the Scheme’s investments are as demonstrated by the response provided in the November Letter, for example. In it, Mr Kelly listed some Scheme investments including: “specific investments for one member only made according to the instructions of that member and to a value of £213k”. No detail or further background was provided as to what those ‘specific investments’ for that particular member were.

  2. Moreover, the Case Team submits that there has been a failure to comply with investment regulations. Pursuant to regulation 7(2) of the Investment Regulations, all trustees and managers of schemes with fewer than 100 members must “have regard to the need for diversification of investments”. Despite this requirement, 64% of the Scheme’s assets were invested in an investment fund owned and operated by GWL. At the time the investment was made GWL was stated to be the Scheme’s “investment adviser.” This gives rise to additional concerns regarding a potential conflict of interest, which compounds the evidence for a lack of trustee knowledge and understanding.

Failure to comply with other statutory requirements

  1. As described above the Case Team argues that there has been a failure to comply with regulations relating to transfer values.

  2. Moreover, the Case Team submits that the Chair’s Statement provided in March 2016 by Mr Kelly on behalf of the Trustee did not comply with a number of statutory requirements as follows:

    i. It did not include a copy of the Statement of Investment Principles (SIP) prepared in accordance with regulation 2A (default investment strategy) of the Occupational Pension Schemes (Investment) Regulations 2005 (the Investment Regulations);

    ii. It did not describe any review undertaken during the scheme year in accordance with paragraph 2, regulation 2A of the Investment Regulations nor any changes resulting from such a review;

    iii. It did not state the level of charges and transaction costs applicable to the default arrangement during the scheme year, nor did it state the range of the levels of charges and transaction costs applicable to all funds which were not part of the default arrangement and in which assets relating to members were invested during the scheme year, as required by Regulation 23(c) of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (the Scheme Administration Regulations);

    iv. It did not explain how the charges and transaction costs of the Scheme represented good value for members as required by regulation 25(1)(b) of the Scheme Administration Regulations;

    v. It did not describe in sufficient detail how the requirements of sections 247 and 248 of PA 04 (requirements for knowledge and understanding) were met during the scheme year or explain how the combined knowledge and understanding of the Trustee, together with the advice which was available to it, enabled it to properly exercise its functions;

    vi. It did not describe how the requirements of regulation 27(2) of the Scheme Administration Regulations (majority of trustees and chair to be non-affiliated) had been met during the year;

    vii. It did not describe how the requirement of regulation 28(1) of the Scheme Administration Regulations (open and transparent appointment process where a non-affiliated trustee was appointed during the scheme year) was met; and

    viii. It did not make arrangements during the year to meet the requirement of regulation 29 of the Scheme Administration Regulations (representation of the views of members to the trustees or managers).

  3. The Case Team argues that the extent of the failures above demonstrates a lack of trustee knowledge and understanding.

  4. The Case Team also submits that the Trustee failed to comply fully or properly with two section 72 notices issued to elicit information about the Scheme, and only partially complied after the original deadline set in the statutory notices had passed, and after further reminders and extensions to the original deadline had to be given.

  5. Finally, the Case Team expresses concerns that there has been a failure to update registrable information as required by section 62 PA 04 Act or notification of a Triggering Event pursuant to section 22 of the Pension Schemes Act 2017.

The Scheme was set up and marketed as a Master Trust yet failed to comply with the applicable statutory obligations

  1. The Case Team submits that by the Scheme’s Trust Deed and Rules and the way the Scheme was marketed on its website, shows that it was set up and intended to be used as a master trust. The Scheme’s Trust Deed and Rules allow more than one employer to join the Scheme without any requirement that the prospective employer be in the same group. The Case Team considers the fact that it appears that no more than one employer has joined the Scheme in practice does not change the fact that the Scheme meets the definition of a master trust, whether or not it has been operated as one.

  2. Mr Kelly however, responded repeatedly stating that he had been advised that the Scheme was not a master trust. By letters dated 17 and 27 April 2020 the Case Team submits that the Scheme had “at least historically been operating as a master trust” and that “it was fair and reasonable that based on that, TPR would have concerns that the Scheme had been operating without authorisation, and would expect the Scheme to have taken steps to comply” with the PSA 2017. The Case Team assert further that the “Trustee’s unwillingness to engage” on the question of whether the Scheme is a master trust meant that “TPR was required to speculate as to the state of affairs”.

  3. In the Case Team’s view this demonstrates a lack of understanding of what constitutes a master trust as set out in the PSA 2017 and how the Scheme satisfied that definition. The Case Team alleges that the failure to understand meant that the Trustee failed to comply with the other statutory requirements. In particular the Trustee failed:

    i. to ensure a minimum of 3 trustees were appointed to the Scheme pursuant to regulation 27(1) of the Scheme Administration Regulations;

    ii. to ensure there was a majority of non-affiliated trustees pursuant to regulation 27(2) of the Scheme Administration Regulations;

    iii. to provide a Chair’s Statement describing how the requirements of regulation 28(1) of the Scheme Administration Regulations (open and transparent appointment process where a non- affiliated trustee was appointed during the scheme year) had been met;

    iv. to make arrangements during the scheme year to meet the requirement of regulation 29 of the Scheme Administration Regulations (representation of the views of members to the trustees or managers); and

    v. to seek or obtain master trust authorisation or alternatively carry out either continuity option 1 or 2 and exit the master trust market. (This allegation was in effect withdrawn in the further clarification the Case Team provided set out below in paragraphs 102 – 103.)

To secure the proper use or application of scheme assets

  1. The Case Team submits that the Trustee’s lack of knowledge and understanding is so severe that it risks an improper application of the assets of the Scheme. The Trustee appears to have been investing assets solely on the instructions of one member rather than in assets for the benefit of the Scheme as a whole and has placed an inappropriate amount of the Scheme’s assets in a single investment fund.

  2. The Warning Notice also states that the Trustee failed to initiate wind up of the Scheme following the dissolution of the principal employer as required by the Scheme’s Trust Deed and Rules. No new employers joined the Scheme. Accordingly under clause 4.4(b)(ii) of the Scheme’s Trust Deed and Rules the Trustee may deem the “Principal Company” (principal employer) to withdraw from the Scheme where the Principal Company has ceased to carry on business (save for purposes of reconstruction and the liabilities continue in the new entity) and further to rule 11.1(a)(iv) that the Scheme will terminate “when and if” that happens. Furthermore, clause 11.1(b) states “When the Scheme terminates, the Trustee will commence procedures to wind-up the Scheme in accordance with this clause 11 on such date as the Trustee shall determine”.

To protect the interests of the members

  1. For all of the reasons detailed above the Case Team submits that the appointment of a New Trustee is reasonable in order to protect the interests of the members. By the Trustee’s inaction the remaining members of the Scheme are exposed to risks, including transfer and lump sum requests not being processed, as well as the risk that the Scheme may ultimately be de-registered with the consequent tax implications for members and an increased possibility of member detriment.

Fees and Expenses

  1. As the Scheme employer is dissolved, the Case Team submits that pursuant to section 8 PA 95 it is reasonable to order the fees and expenses of the New Trustee be paid out of the resources of the Scheme.

Exclusive powers

  1. Finally, the Case Team asks that the New Trustee be appointed with exclusive powers given the seriousness of the Trustee’s actions (or lack of them) and the potential risk to Scheme members if the Trustee retain authority to act.

Representations

  1. The deadline to provide representations was 16 March 2020. The Case Team did not receive any representations from the Trustee nor was any request for an extension made. The proposed New Trustee confirmed on 16 March 2020 that it would not be submitting any representations.

Panel Correspondence

  1. The Panel wrote to the Case Team on 9 April 2020, and again on 20 April 2020, to clarify the allegations made under the PSA 2017. In particular, the Panel sought to clarify the interaction between the PSA 2017 and the powers the Panel was being asked to exercise under section 7 PA 95.

  2. By their responses dated 17 April 2020 and 27 April 2020 the Case Team clarified that whilst the Scheme meets the definition of a master trust for the purposes of section 1(1) of the PSA 2017, at the time of referral to the Panel (and since) they had not received any information or evidence to suggest the Scheme was in receipt of payments from members or employers or received any other fees in connection with the Scheme, other than the historical transfers into the Scheme of members and assets.

  3. Consequently, the Case Team’s conclusion is that although the Scheme may have been operating as a master trust in the past there is no evidence that it is now operating as a master trust for the purposes of the PSA 2017. Furthermore, the Case Team states that “it was not necessarily a failure on Mr Kelly or the Trustee to not seek authorisation if, since such legislation was introduced, the trustee never operated the scheme as a MT”. Powers under other legislation may therefore be exercised by TPR without conflict with the PSA 2017. For that reason, the Panel did not further consider allegation (v) in paragraph 94 above.

  4. On 21 April 2020 Mr Kelly wrote by email to the Case Team (copied to other parties and Determinations Panel Support) stating the following:

    “Am I to understand from your emails that it is now the intention to prohibit me from acting as trustee to the Audax Pension Scheme and the intention is to appoint Dalriada as independent trustees? If this is the case, I welcome their appointment with open arms and am happy to assist them in any way that I possibly can, to help find a resolution to the Audax Pension Scheme”.

The Law

  1. The power to make an order under section 7 PA 95 appointing a trustee is a regulatory function listed in subsection 97(5) PA 04.

  2. Section 7(3) PA 95 allows TPR to appoint a trustee of a pension scheme. It provides:

    “(3) The Authority may also by order appoint a trustee of a trust scheme where they are satisfied that it is reasonable to do so in order—

    (a) to secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the scheme,
    (b) to secure that the number of trustees is sufficient for the proper administration of the scheme,

    (c) to secure the proper use or application of the assets of the scheme, or;

    (d) otherwise to protect the interests of the generality of the members of the scheme.”

  3. Sections 247, 248 and 249 PA 04 requires every individual who is a trustee of an occupational pension scheme and corporate trustees of occupational pension schemes, in relation to each scheme they are trustee of, to be conversant with certain scheme documentation such as the Scheme Trust Deeds and Rules, and to have knowledge and understanding of the law relating to pensions and trusts.

  4. Sections 94(2) and 95 Pension Schemes Act 1993 provide that members of a money purchase scheme can request a cash equivalent value (to be calculated according to prescribed methods and by reference to the date the application for the value was made). Members can also ask for that value to be converted or dealt with as prescribed in the legislation including transfer to a “different arrangement”.

  5. For the purposes of section 270 FA 04, the scheme administrator in relation to a pension scheme is the person who is, or persons who are, appointed in accordance with the rules of the pension scheme to be responsible for the discharge of the functions conferred or imposed on the scheme administrator of the pension scheme by and under the FA 04.

  6. Section 72 PA 04 provides that where the production of a document, or the provision of information, is required by a notice given under this section, the document must be produced, or information must be provided, in such a manner, at such a place and within such a period as may be specified in the notice.

  7. The Occupational Pension Schemes (Scheme Administration) Regulations 1996 by regulation 23 requires that the trustees or managers of an occupational pension scheme must prepare a statement within seven months of the end of each scheme year, and that statement must include certain prescribed information in relation to (but not limited to) the scheme’s default arrangement, statement of investment principles, charges and transaction costs.

  8. Section 36 PA 95 requires trustees to obtain and consider “proper advice” prior to the investment of scheme funds and requires such advice to be evidenced in writing.

  9. The Occupational Pension Schemes (Investment) Regulations 2005 regulation 7 provides that where a scheme has fewer than 100 members the trustees of the scheme and fund managers in exercising their powers of investment must have regard to the need for diversification of investments, in so far as appropriate to the circumstances of the scheme.

  10. Trustees also owe duties under common law. Trustees must act bona fide in the best interests of the members. A trustee must not, therefore, connive at or knowingly facilitate any act or conduct of another person which would involve a breach of trust or occasion loss or risk to the trust property[2]. In a pensions context, this includes a duty to act in accordance with relevant pensions legislation.

  11. A trustee has a duty to promote the purpose for which the trust was created[3]. In the pensions context, it is generally accepted that this will require the trustee to act in the best financial interests of the members of a scheme[4] and not to prefer the interests of third parties to those of the members (and other beneficiaries) of the scheme.

  12. Section 100 of PA 04 requires the Panel to have regard to the following matters when determining whether to exercise a regulatory function, and the Panel so had regard:

    “(a) the interests of the generality of the members of the scheme to which the exercise of the function relates, and

    (b) the interests of such persons as appear to the Regulator to be directly affected by the exercise.”

Decision

  1. The Panel determined that an independent trustee should be appointed to the Scheme and the requested related orders be made.

Reasons for decision

  1. The Panel was satisfied that the Scheme is an occupational pension scheme, and that it had a sole corporate trustee, acting exclusively through one of its trustee directors, Mr Kelly. The Panel noted that neither Mr Kelly, nor the Trustee, has opposed the Warning Notice and indeed Mr Kelly has welcomed the proposal to appoint an independent trustee to the Scheme. 

  2. The Panel was satisfied that it was reasonable to appoint an independent trustee on each of the grounds set out in section 7(3)(a), (c) and (d). Taking each in turn as follows.

To secure the necessary knowledge and skill

Proposed Scheme de-registration

  1. The Panel was satisfied that the Trustee, and Mr Kelly acting for it, lacked the necessary knowledge and skill to act as a trustee. In the Panel’s view the Trustee’s knowledge and understanding did not meet the requirements set out in sections 248-249 of PA 95.

  2. The Panel considered that despite prior notification of the fact that HMRC intended to withdraw registration from the Scheme, over a prolonged period the Trustee was not effective in dealing with the situation. The Scheme’s de-registration risks the loss of valuable tax benefits and could have been avoided by the appointment of a section 270 Administrator or transferring the scheme members to a different registered pension scheme.

  3. Despite these risks the Trustee failed to take appropriate steps to appoint a new section 270 Administrator to the Scheme. Similarly, the Scheme’s members have not been transferred to a different registered pension scheme even though this option was first mentioned by Mr Kelly in February 2017.

  4. The Panel noted the purported appointment of Mr Glaze, who Mr Kelly claimed would be assisting with discussions with HMRC and providing “general assistance” to the Scheme. The Panel also noted that the Case Team said they had never heard from Mr Glaze.

  5. Although an appeal was lodged with HMRC against the proposed de- registration, the Panel noted this was done by Masons prior to ceasing to be the Scheme’s administrator, and no further evidence has been provided of the steps (if any) taken by the Trustee towards succcessfully challenging the proposed de-registration.

  6. The Panel noted that the Case Team had recommended that the Trustee seek professional advice at various points. Mr Kelly had approached Dalriada and Deloitte, albeit late in the day, to try to sort out the situation with the Scheme following notification of its proposed de-registration. However, those approaches did not secure the appointment of a new administrator to the Scheme, whereas a competent trustee should have been able to do so. It was also of concern that, rather than accepting their responsibility and seeking to rectify the situation, the Trustee and Mr Kelly, implied (wrongly) that TPR and HMRC were holding things up by not approving any appointment.

  7. The Panel noted that it is clearly the Trustee’s responsibility to sort out the situation with the Scheme and to seek whatever professional assistance it required in order to make the right decisions concerning the Scheme and the Scheme’s members.

  8. The Panel considered the Case Team were right to be concerned about the Trustee’s competence (or lack thereof) as there was a lamentable failure by the Trustee to secure a new section 270 Administrator and Scheme administrator.

Dealing with members

  1. The concerns raised with TPR and others by members of the Scheme also demonstrated a lack of trustee knowledge and skill. Furthermore, the concerns reported to TPR by Scheme members who were not able to get accurate valuations of, or transfer, their pension pots with the Scheme demonstrate the impact of the Trustee’s failings on Scheme members. Mr Kelly’s assurances as to the safety of members’ funds lacked evidential backing, and the Panel had serious concerns about the safety of the funds.

  2. Mr Kelly’s responses to Scheme members’ requests were particularly concerning. There was substantial evidence of Mr Kelly not being clear in his communication with members (and in some instances being quite contradictory), particularly about the reasons for the non-appointment of an administrator, claiming he was being prevented by HMRC and TPR and failing to follow up on commitments made in earlier communications with members. At best, this suggests that Mr Kelly had no proper understanding of the Trustee’s duties.

  3. The Panel was satisfied that there was a failure by the Trustee to comply with the various transfer requests made by Scheme members who wanted to transfer out their pension funds to a different scheme and/or requesting valuations of the pension funds held in the Scheme. This was contrary to the Pension Schemes Act 1993. From the evidence, it would appear that neither the Trustee nor Mr Kelly were aware of the provisions for complying, again evidencing a lack of trustee knowledge and understanding. On the assumption that any applicable eligibility criteria were met by the Scheme members there was a statutory requirement for the Trustee to comply with requests from members with regard to providing a cash equivalent transfer value of their fund and any subsequent transfer requests within a prescribed period. The reasons given for the failure by Mr Kelly were inadequate and incorrect.

  4. Separate allegations were made by the Case Team in relation to the alleged breach of regulation 6 of the Occupational Pension Schemes (Transfer Values) Regulations 1996. The Panel was not persuaded that this provision was applicable and made no finding that there had been a breach of this provision.

  5. The Panel was seriously concerned that in March 2018 Mr Kelly, in response to member concerns, claimed that “funds are currently held in [GWF]” when GWF had apparently resigned as investment adviser to the Scheme in April 2017 and more so, when on approach GWF reportedly stated that they hold no capital in respect of the Scheme and “did not have visibility to members records”. The Panel also took into account that the Case Team state that they have no evidence to support or refute the claim that Scheme funds in GWF could be requested and repaid in cash on request of the Trustee.

Understanding of pensions law and the Scheme’s Trust Deed and Rules

  1. The Panel was also satisfied that the failure to act in accordance with the Scheme’s Trust Deed and Rules pointed to a clear lack of competence, trustee knowledge and understanding. The principal employer for the Scheme, Refined By Limited, was dissolved on 27 February 2018. No replacement principal employer was found and no new participating employers had joined the Scheme. According to the Scheme’s Trust Deed and Rules (clause 4.4), the Trustee should have commenced wind up of the Scheme in accordance with clause 11.1(b). The Panel accepted the Case Team’s submission that the absence of any action in compliance with these requirements is not explained solely by the freedom of the Trustee to choose the wind up date. There is no evidence that the Trustee even recognised that there was a requirement to terminate and wind up the Scheme in accordance with the Scheme’s Trust Deed and Rules.

  2. The Panel was also satisfied that the Trustee had failed to comply with various other statutory obligations including the failure to provide a compliant Chair’s Statement.

  3. The Panel also agreed that section 72 notices issued by the Case Team in an effort to gather information about the Scheme were not answered correctly by Mr Kelly on behalf of the Trustee.

  4. In summary, the Trustee’s failure to comply with numerous statutory requirements on trustees fell far short of what is to be expected of a competent and capable trustee.

  5. The Warning Notice also sets out breaches of other pensions law applicable to a master trust scheme (reproduced at paragraph 94 (i)-(iv) above). The Panel was unclear as to whether these allegations had also been withdrawn in the correspondence exchanged with the Case Team. In any event, the Panel did not consider it necessary to reach any decision on those issues, given that it was satisfied that it should exercise the power to appoint an independent trustee based on the other matters raised in the Warning Notice.

Investment concerns

  1. Information provided on the Scheme’s investments as at 31 December 2016 showed that an investment equivalent to 64% (£729,000) of the Scheme’s assets was made in GWF. The Panel was concerned that this investment was made despite an apparent conflict of interest, given that GWF was supposed to have been the investment adviser to the Scheme. There was no evidence of any recognition of the apparent conflict of interest. The Panel had seen no evidence as to whether the Trustee had obtained proper (written) advice prior to that investment, which would appear to be a breach of section 36 PA 95.

  2. Also of concern to the Panel was that in 2017 the Trustee appears to have adhered to a single member’s instructions to invest a large sum (£213,000) solely for that member, rather than in assets for the collective benefit of the Scheme without proper advice.

To secure the proper use or application of scheme assets

  1. The Panel was also satisfied that the Trustee’s lack of knowledge and skill is such that it risks an improper application of the assets of the Scheme. Furthermore, the Panel noted that in May 2017 both the Scheme’s Investment Manager and Investment Adviser resigned from the Scheme, and the Panel has not seen any evidence that new advisers had been appointed. Additionally, given that the appeal against de- registration has not yet been concluded the Panel was particularly concerned that Scheme assets and members’ interests clearly remain at significant risk.

  2. In the circumstances, the Panel considered that there was a serious risk that members would suffer detriment if the Trustee is allowed to continue with the Scheme. It is clear that the Trustee failed to appoint anybody capable of administering the Scheme whether for HMRC purposes or more generally, which the Panel considered to be a critical failure. The Panel was satisfied that there is clearly not only a risk to the Scheme that has crystallised but also potential further detriment occasioned to members through the Trustee, and Mr Kelly’s, lack of trustee knowledge and understanding.

  3. The Panel was satisfied that the investments made were not in accordance with the requirements of the Investment Regulations, in particular regulation 7(2) and the need for diversification of investments by schemes with fewer than 100 members. There appeared to be an overall lack of prudence and the Panel agreed that the actions of the Trustee, and the failure to obtain proper investment advice, were likely to lead to the improper use of Scheme assets. The Panel noted that no steps appear to have been taken by the Trustee to date to unwind these investments to ensure compliance.

  4. All of the evidence above taken together reinforced the Panel’s view that it was reasonable to appoint an independent trustee under section 7(3)(c) of PA 95 to ascertain more fully what has happened to the funds paid into, and out of, the Scheme, and secure their proper use and application.

To protect the interests of the generality of the members of the Scheme

  1. The Panel was satisfied that the appointment of a New Trustee is also reasonable in order to protect the interests of the members given the corporate trustee’s lack of the requisite knowledge and understanding and the risk to members’ interests should the scheme be de-registered by HMRC.

  2. The Panel noted that the appeal lodged against the Scheme’s de- registration has not yet concluded. This situation, therefore, continues to pose a risk to the Scheme and in turn, its members of losing the tax benefits attached to an occupational pension scheme should HMRC conclude its action and de-register the Scheme. It is in the interests of the members and the Scheme that an independent trustee is appointed to secure the proper administration of the Scheme.

  3. The Panel noted Dalriada confirmed that it remained willing to accept the appointment.

Exclusive Powers

  1. The Panel was of the view that the New Trustee should be appointed with exclusive powers. Given the Trustee’s apparent lack of knowledge and understanding it was important that the New Trustee should be able to act without reference to, or interference from, the Trustee.

Ancillary Orders

  1. The Panel accepted the Case Team’s submission that as the principal employer is now dissolved and no replacement secured, it is reasonable in the circumstances to order that any fees and expenses of the proposed New Trustee be paid out of the resources of the Scheme pursuant to section 8 PA 95.

  2. The Panel also agreed to make an order under section 9 PA 95 to order the property of the Scheme to vest in the proposed New Trustee of the Scheme.

Conclusion

  1. The Warning Notice stated that Dalriada is proposed as the independent trustee following a selection process. Dalriada indicated in correspondence to the Case Team and again directly to the Panel that it would be content to accept the appointment if it were made. The Trustee raised no objections to the proposed independent trustee, indeed welcomed it, and the Panel had no objections. The Panel therefore accepted that Dalriada be appointed as the independent trustee.

  2. For these reasons the Panel determined that an order should be made in the following terms:

Appointment of an independent trustee

(1) Dalriada Trustees Limited (the New Trustee) is hereby appointed as trustee of the Audax Pension Trust (the Scheme), with immediate effect.

(2) The order at (1) is made because TPR is satisfied that it is reasonable to do so pursuant to the relevant provisions of section 7(3) of the PA 95 as set out below, in order:

i. to secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the Scheme,

ii. to secure the proper use or application of the assets of the Scheme, and

iii. to protect the interests of the generality of the members of the Scheme.

(3) The powers and duties exercisable by the New Trustee shall, until further order, be to the exclusion of all other trustees of the Scheme pursuant to section 8(4)(b) of the PA 95.

(4) The New Trustee’s fees and expenses in respect of the Scheme shall be paid out of the resources of the Scheme pursuant to section 8(1)(b) of the PA 95 (5) Pursuant to section 9 of the PA 95, it is hereby ordered that all property and assets of the Scheme, heritable, moveable, real and personal, of every description and wherever situated and all rights pertaining to that property be vested in, assigned to and transferred to, the New Trustee as trustee of the Scheme.

(6) The appointment of the New Trustee may be terminated, or the New Trustee replaced, at the expiration of 28 days’ notice from TPR to the New Trustee, pursuant to section 7(5)(c) of the PA 95 and such power to terminate or replace the appointment shall be exercised by TPR in accordance with its delegation policy.”

  1. In making its decision the Panel had regard to the objectives of TPR as set out in section 5 PA 04 and to the matters listed in section 100 PA 04.

  2. Appendix 1 to this Determination Notice contains important information about the Directly Affected Parties rights to refer this decision to the Upper Tribunal.

 

Signed:
Name: Antony Townsend 
Dated: 17 June 2020
(Revised on 5 August 2020)

Appendix 1

Referral to the Tax and Chancery Chamber of the Upper Tribunal

You have the right to refer the matter to which this Determination Notice relates to the Tax and Chancery Chamber of the Upper Tribunal (the Tribunal). You have 28 days from the date this Determination Notice is sent to you to refer the matter to the Tribunal or such other period as specified in the Tribunal rules or as the Tribunal may allow. A reference to the Tribunal is made by way of a written notice signed by you and filed with a copy of this Determination Notice.

The Tribunal’s address is:

Upper Tribunal
(Tax and Chancery Chamber) Fifth Floor
Rolls Building 
Fetter Lane 
London 
EC4A 1NL

Tel: 020 7612 9730

The detailed procedures for making a reference to the Tribunal are contained in Section 103 of PA 04 and the Tribunal Rules.

You should note that the Tribunal rules provide that at the same time as filing a reference notice with the Tribunal, you must send a copy of the reference notice to TPR. Any copy reference notice should be sent to:

Determinations Panel Support 
The Pensions Regulator 
Napier House
Trafalgar Place 
Brighton
BN1 4DW

Tel: 01273 811852

A copy of the form for making a reference, FTC3 ‘Reference Notice (Financial Services)’ can be found on the GOV.UK website.

Footnotes

[1] It appears the Scheme’s bank account name remained unchanged following the Scheme’s change in name.

[2] Head v Gould [1998] 2 Ch 250 at 268-269 per Kekewich J.

[3] Merchant Navy Ratings Pension Fund Trustees Limited v Stena Line Limited [2015] EWHC 448 (Ch) at 229

[4] Cowan v Scargill [1985] 1 Ch 270

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