In a ruling made last month the Ombudsman held that a trustee failing to properly respond to incomplete transfer requests by a member amounted to maladministration, despite the fact that the requests did not fulfil the statutory requirement for exercising a right to a cash equivalent transfer value (CETV).
The member in this instance was attempting to transfer out of a pension liberation vehicle.
The term “pension liberation” can cover any form of possible unauthorised use of pension monies. Most commonly members are offered an opportunity to obtain some or their entire pension fund prior to reaching normal minimum pension age.
What is a “Pension Liberation” scheme?
Many pension liberation schemes are set up as occupational pension schemes that are registered with HMRC and to the untrained eye do not appear to be undertaking anything illegal. However, it is often the case that HMRC tax rules in relation to unauthorised payments/loans are breached and such breaches usually have negative tax consequences for the members.
Equally there are numerous examples of where the "liberator" has committed a fraud by making the offer to the member, for example if the member is not informed of the possible adverse tax consequences, the fees involved or what is to happen to that part of the pension fund which is not initially paid out to him.
The Statutory Right to a CETV
Section 94 of the Pension Schemes Act 1993 (PSA 1993) gave members a statutory right to take a CETV out of the Scheme when his pensionable service concludes provided that certain conditions are met.
A member must make an application in writing to the scheme trustees requiring them to use the CETV in one of several ways (section 95 PSA 1993). These include acquiring transfer credits or rights in another occupational or personal pension scheme, the trustees or managers of which are able and willing to accept payment in respect of the member's accrued rights.
If trustees receive an application that fulfils such criteria they are required to do everything that is needed to effect the transfer within six months of the date they receive the application, or the date the member attains normal pension age, if that is earlier (Section 99 PSA 1993).
The facts of Crossland
In 2013 Mr Crossland obtained a report on his current pension plans from a firm that expressly stated that it was not providing financial advice and was not regulated by the FCA. As a result of this report he transferred his benefits from plans with Scottish Widows and Wesleyan Assurance to the Henley Retirement Benefit Scheme (Scheme).
Omni Trustees Ltd (Trustees), the trustees of the Scheme, confirmed in correspondence to Mr Crossland that it had received two transfers totalling £100,708.84 (less a charge of £1,800). The Trustees also stated that the "Scheme is an occupational pension scheme".
Mr Crossland told the Ombudsman that he was subsequently unable to obtain any more information about his Scheme pension. As a result he wrote to the Trustees in March 2014 requesting a CETV, although at this stage he did not give the name of the scheme to which he wanted to transfer. He then made a further transfer request on 3 June 2014, asking to transfer his benefits to a named occupational pension scheme. Mr Crossland was not employed by an employer in relation to this scheme.
Mr Crossland submitted that the Trustees had ignored his requests to transfer his benefits from the Scheme. The Trustees ignored the Ombudsman’s request for submissions save as for an email dated 18 June 2014 in which they stated that they were liquidating Scheme assets to comply with Mr Crossland's request and requests by other members. Then in November 2014 Mr Crossland received a letter from the trustee of a small self-administered scheme (SSAS) making reference to a transfer of Scheme assets. Mr Crossland submitted that he had no knowledge of the SSAS, the reason for such a transfer or whether it included his fund.
The Ombudsman’s Decision
In upholding Mr Crossland’s complaint the Ombudsman noted that, although there was "little doubt" that Mr Crossland's transfer from "two reputable established schemes" was "against his best interests", the complaint related to his later attempts to transfer out of the Scheme. The Ombudsman went on to say "I do not know what has happened to the assets he transferred. They may or may not be secure, though he is very rightly concerned that they are not."
The issue in question was whether Mr Crossland had a statutory right to transfer out of the Scheme. Mr Crossland had never seen the Scheme's governing documents and the Trustees had ignored all his enquiries. Resultantly, the Ombudsman was unable to reach a conclusion on whether Mr Crossland had a free-standing right under the Scheme to a transfer or whether there might be an element of discretion involved.
Despite this Mr Crossland could not be deprived of his statutory right to take a CETV, so long as his request met the statutory requirements. Mr Crossland was a member of the Scheme on the basis of the correspondence from the Trustees that had referred to him as such. Unfortunately, neither of Mr Crossland's March 2014 or June 2014 letters met the test for a request to exercise his statutory right under section 95 PSA 1993. Mr Crossland had failed to state in writing that he required the Trustees to use the CETV to acquire transfer credits or rights in an occupational or personal pension scheme, the trustees or managers of which were able and willing to accept payment.
However, the Trustees failure to respond Mr Crossland's incomplete requests was held by the Ombudsman to be unquestionably maladministration that had halted the transfer request process. If Mr Crossland had submitted a full transfer request that met the statutory requirements, he would have acquired a statutory transfer right.
The Ombudsman determined that if Mr Crossland submitted a request that a transfer value be paid to a named scheme that met the prescribed requirements under legislation and was prepared to accept it, the Trustees were required to pay the transfer value to that arrangement.
Further, the Ombudsman also strongly recommended to Mr Crossland that his next transfer application should be to a pension arrangement with an FCA-regulated provider or to one "directly related to active employment". Finally, the Ombudsman recommended that Mr Crossland take advice from an FCA-regulated adviser as "[d]oing otherwise will leave him vulnerable to a repeat of the experience he has already suffered, or worse."
A key point here is that the Mr Crossland’s transfer requests fell so short of the statutory requirements that the Ombudsman was apparently unable to find that they would have resulted in a formal request to exercise his right to a CETV if they had not been ignored.
Contrastingly, in the recent determination in Mr X (PO-3590) the Ombudsman ruled that if the trustee had not ignored an initial request, the complainant would have made a formal request to take a CETV, which the trustee should then have completed by the relevant statutory deadline.
The difference appears to have been that Mr Crossland may not have been an "earner" in relation to the occupational pension scheme to which he tried to transfer in June 2014. In Jerrard (PO-3809), the Ombudsman held that for the purposes of section 95 of the PSA 1993, the transfer request must require the receiving provider to use the CETV for securing transfers credits, where "transfer credits" mean "rights allowed to an earner under the rules of an occupational pension scheme".