A landmark High Court ruling in the case of Hughes v The Royal London Mutual Insurance Society Ltd (Royal London) means that members do have a statutory right to transfer to another pension scheme even if they do not receive earnings from that scheme’s employer, provided that they have earnings from another source.

The relevant legislation requires a member to be an “earner”, and the Pensions Ombudsman (PO) interpreted this to mean members must receive earnings from the employer of the receiving scheme.  Since the scheme in question had a non-trading employer and the member was not receiving earnings from that employer, the PO held that the statutory right to transfer did not arise and therefore Royal London was entitled to refuse to make the transfer.

On an appeal by Ms Hughes, the High Court overruled the PO’s decision, stating that there is no basis for interpreting the legislation this way.  The High Court held that Ms Hughes was an earner by reason of her earnings from another source; therefore she was entitled to a statutory transfer.

This decision means that insurers and trustees and administrators of other schemes with non-trading employers, who receive transfer requests to schemes (including SSASs), cannot refuse to make the transfers on the basis that there are no earnings from the scheme employer.

Insurers, trustees and administrators who have refused transfer requests on this basis will need to review those decisions urgently.

There is concern within the industry that this decision will make it easier for pension scams to take place where money from legitimate schemes is transferred to suspicious schemes; where a statutory right to transfer arises, there is little the transferring insurer or administrator can do to prevent the transfer even if they have significant concerns about the legitimacy of the receiving scheme.