The issue of transfer requests and pension liberation is a difficult one for trustees and scheme providers, and the approach taken by the Pensions Ombudsman ("PO") is therefore watched with interest by the pensions industry. Three determinations were issued on this subject in April - one where a transfer was blocked and two where transfers were made. Whilst all three cases relate to personal pension providers, in our view, the key points arising from the cases are also relevant for trustees of occupational pension schemes. In this Pensions Alert we provide a brief overview of these determinations and their implications for trustees.
Blocked transfer case
In January 2015 the PO determined three complaints in respect of blocked transfers. He found in the providers' favour in all three cases on the grounds that the members did not have a statutory right to transfer (although he noted that the providers had not subjected the applications to analysis to establish this), but in one case the complaint was upheld to the extent that the provider had not properly considered the exercise of a discretion under the scheme rules. A further determination was issued in April 2015 in respect of a provider that had blocked a transfer, but this time the complaint was upheld and the provider was directed to make the transfer.
The Applicant requested that his benefits in a personal pension scheme ("Transferring Scheme") be transferred to a small self-administered scheme ("Receiving SSAS"). The provider refused to make the transfer because it believed that it was for pension liberation purposes, informing the Applicant that it was concerned because he was under age 55, the Receiving SSAS had only recently been registered with HMRC, and its scheme administrator (for Finance Act purposes) had only recently registered as a company. During the PO's investigation the provider expressed some more specific concerns including whether the scheme had been validly registered with HMRC because of a lack of evidence that the entity which submitted the registration had been appointed as scheme administrator.
As for the cases determined in January 2015, the PO completed detailed analysis as to whether the member had a statutory right to transfer. Whilst the PO was satisfied that the Receiving SSAS was an occupational pension scheme, he did not think that the transfer met the statutory requirement of being for the purposes of acquiring "transfer credits". This was on the basis of the PO's view that in order to meet the definition of "transfer credits" the person has to be an "earner" in relation to an employer participating in the receiving scheme, which the Applicant was not.
However, this was not the end of the matter because the rules of the Transferring Scheme stated that members could direct a transfer to be made to another registered pension scheme. The Receiving SSAS was in fact a registered pension scheme and therefore the Applicant had a contractual right, rather than a statutory one, to a transfer. The PO also decided that the transfer would not have constituted an unauthorised payment and therefore concluded that the provider should have acceded to the transfer request once it completed its review of the Receiving SSAS documentation.
In his conclusions, the PO was critical of the provider's failure to give the Applicant an opportunity to argue his case, to give specific reasons for its concerns about pension liberation or to ask questions about the specific matters which it later said had caused it concern. In particular the PO noted that had questions been asked, the concerns about the scheme administrator's appointment would have been shown to be unwarranted.
The PO considered that if the provider had taken the correct approach, it should, by 31 July 2013, have reached the conclusion that the Applicant was entitled to exercise his contractual right to transfer. The provider was directed (if the Applicant still wishes to transfer) to pay the transfer value at the higher of its value at the date of payment and the value as at 31 July 2013 plus simple interest.
Implications for trustees
The existence of the contractual right to transfer was fundamental to the outcome of this case and the criticism of the provider's failure to ask questions and give specific reasons is also notable. The case therefore provides two key lessons for trustees when dealing with transfer requests.
Understand what rights the member has to transfer their benefits, whether under statute or the scheme rules. The existence of the contractual right was crucial here with the PO stating that it "immediately places [the provider] on the back foot in this case".
When considering whether pension liberation is a potential issue, be clear about what the specific warning signs are and ask questions and conduct due diligence to establish whether there is a cause for concern. As we reported in our Pensions Alert of 26 March 2015, a voluntary industry Code of Good Practice on Combating Pension Scams ("Code") has recently been published which focuses on setting out industry standard due diligence to follow when considering a transfer request. The Code sets out steps including asking the member questions to try to identify whether there are warning signs, and undertaking detailed due diligence on the receiving scheme.
It is also notable that this case demonstrates the same approach that the PO took in the January determinations which is that where members have a right to a transfer, they cannot be deprived of this.
Cases where transfers were made
The receiving scheme in these cases was the Capita Oak Pension Scheme which was the subject of a previous PO determination issued in December 2014. That case involved Mr X, who had transferred his benefits from a public service pension scheme to the Capita Oak Pension Scheme, but subsequently became concerned about his decision and requested a transfer out. The PO upheld Mr X’s complaint that the trustee of the Capita Oak Pension Scheme had failed to comply with this request and directed the trustee to make the transfer, noting that if it does not comply Mr X may attempt to enforce the direction through the courts.
The April 2015 cases where transfers were made relate to complaints brought by the same member (Mr Winning) against two different personal pension providers. In 2012 Mr Winning requested that transfers be made from both schemes to the Capita Oak Pension Scheme. The transfers were made in late 2012 and Mr Winning signed forms discharging each of the providers from any liability.
Mr Winning subsequently had difficulties contacting the Capita Oak Pension Scheme and became concerned about his benefits. He claims that the providers did not make the necessary checks before making the transfers and as redress wants the providers to pay him the transfer value.
Whilst the PO expressed sympathy for Mr Winning’s position, he did not uphold the complaints. He noted that both transfer applications appeared to comply with the requirements for a statutory right to transfer and that the Pensions Regulator did not issue guidance to providers about pension liberation until February 2013 (after the transfers had already been made). This meant that there was no reason to withhold the transfers and the PO therefore concluded that there had been no administrative failure by the providers.
Implications for trustees
These cases provide some comfort for trustees who make transfers, in that the PO once again stated that if members have a statutory transfer right, they cannot be deprived of this. However, in so far as the conclusion that there were no administrative failures relates to the level of due diligence and the failure to flag the risk of pension liberation, it is of limited application.
This is because these transfers pre-date the Regulator’s guidance on pension liberation and the publication of the Code. The PO noted that the publication of the Regulator’s guidance might be seen as a point of change in what might be regarded as good industry practice and that he could not apply current levels of knowledge and understanding or present standards of practice to a past situation.
If a scheme proceeded with a transfer now without flagging the risk of pension liberation to the member, having regard to the Regulator’s guidance or following the steps in the Code, the outcome may well be different. In any event, taking these actions are useful steps for trustees to try to prevent complaints from arising in the first place.
These cases demonstrate that pension liberation continues to be a complex issue for trustees with no easy answer.