The High Court has given judgment in Hughes v The Royal London Mutual Insurance Society, the first appeal from the Pensions Ombudsman Service in relation to pension liberation. Overruling the Ombudsman, the court held on the facts that the member had an overriding right to transfer to a suspected liberation scheme.
Over recent years increasing numbers of scheme members have requested transfers to pension liberation arrangements (typically marketed as allowing members to convert pension benefits into cash). Ms Hughes’ personal pension provider refused her request to transfer from her personal pension plan to a small self-administered scheme. The personal pension plan rules gave the provider absolute discretion as to whether to agree a transfer, and the provider refused to do so due to its suspicions over pension liberation. The member argued that regardless of the plan rules, she had an overriding statutory right to transfer and brought a complaint against the provider.
What did the Pensions Ombudsman decide?
Last year, the Ombudsman held that although the member’s chosen receiving scheme met the criteria of being an occupational pension scheme registered with HMRC, she still had no statutory right to transfer to it. To be a statutory transfer, the receiving occupational pension scheme must use her cash equivalent transfer value to secure “transfer credits”, which are defined in the legislation as rights allowed to a member as an “earner” under the rules of the receiving scheme.
The Ombudsman said that as Ms Hughes had no relevant earnings with an employer under the new scheme (a common feature in relation to alleged pension scams) the proposed transfer did not satisfy the legal conditions to be a statutory transfer. As a result, under the rules of the personal pension plan the provider was entitled to refuse the transfer request.
The High Court’s view
The High Court overturned the Ombudsman’s approach to transfer credits. The judge decided that Royal London could not refuse the transfer request, because Ms Hughes was entitled to a statutory transfer. In order to meet the “transfer credits” requirement in the legislation, it was sufficient that she was an “earner” by reason of her earnings from any source, even though she was not receiving earnings from an employer under the scheme that she was transferring to. The judge said that accepting the Ombudsman’s interpretation involved reading words into the statute which were not there.
What does this judgment mean?
Although the outcome may seem a blow to the Ombudsman, it does not call into question his office’s wider approach to the liberation cases to date. Trustees should undertake appropriate due diligence, taking into account their legal duties as well as relevant regulatory guidance and good industry practice. If, having done so, trustees cannot establish a reason why there is no right to transfer, their duty is to make payment.
What the decision does do is remove a technical argument which transferring trustees had as to why a member might not have an overriding right to transfer. Where trustees have previously refused a transfer on the “transfer credits” ground alone, they should urgently review their decision.