In a recent decision that went against Prudential, the Ombudsman has ruled that a deferred member of a personal pension scheme should have been allowed to exercise his contractual right under the scheme rules to transfer his pension fund to an occupational pension scheme in circumstances where the transfer was not an unauthorised payment.
Mr Harrison was a deferred member of the Prudential Personal Pension Scheme (Scheme) and was aged 45 in 2013. The Scheme was administered by Prudential Assurance Company Limited, whose activities were regulated by the FCA.
Under the Scheme rules a member was permitted to direct the scheme administrator to transfer his funds to another registered pension scheme (or qualifying recognised overseas pension scheme) on request, provided this would not be an unauthorised payment.
In May 2013 Mr Harrison contacted Prudential with a request to transfer his Scheme proceeds to the Cheshire Food Services Pension (CFSP), which he outlined was an occupational pension scheme administered by Active SSAS.
After a delay of nearly 3 months (for which Mr Harrison was compensated) Prudential refused to make the transfer stating that, following “appropriate checks as outlined by the [Regulator]” it had the following three concerns that led it to conclude that the transfer may have been for the purposes of pension liberation:
- Mr Harrison was under age 55;
- Active SSAS was only recently registered as a company; and
- CFSP was only recently registered with HMRC.
Despite his objections Prudential refused the transfer a second time, this time citing seven possible areas of concern that it said were derived from the Regulator’s guidance.
As a result Mr Harrison complained to the Ombudsman, outlining that the CFSP had been established by a friend primarily for his own benefit and the friend had offered him membership in order to give him more flexible investment opportunities. Further he submitted that CFSP allowed non-employees to become members, alongside evidence that Active SSAS was appointed as the Scheme administrator by a 2013 deed between it and the trustee.
In reply Prudential submitted the following additional concerns:
- There was no evidence that Mr Harrison was a trustee of the CFSP (which was required as it was intended to be a small self-administered scheme) or employed by Cheshire Food Services Ltd;
- There was no evidence that Active SSAS had been properly appointed as administrator, with the result that its purported HMRC registration of the CFSP would be invalid and the transfer would be an unauthorised payment; and
- It was required to follow the Regulator's guidance because it regulated the CFSP and the FCA had shown support for this guidance.
The Ombudsman upheld the complaint stressing that a statutory right took precedence over any regulatory guidance or rule. As a result the Ombudsman held that Prudential failed to make a detailed analysis to establish if the member had a statutory or indeed a contractual right to transfer.
Further the Ombudsman held that in relation to the Pensions Regulator's guidance, which was not strictly relevant to the personal pension scheme, Prudential had given the member only generic reasons for refusing to make the transfer and had relied on unsubstantiated doubts. Prudential should have specified the relevance of the reasons and properly investigated the circumstances to establish whether any of its doubts could be substantiated.
At the time of the complaint, section 94 of the Pension Schemes Act 1993 (PSA 1993) gave members of occupational and personal pension schemes a statutory right to take a cash-equivalent transfer value (CETV) out of the scheme in the form of “transfer credits”.
However, the contractual right that the Ombudsman afforded Mr Harrison was distinct from the statutory right to a CETV which was not established here as he had not been trying to establish transfer credits. This was because he had not received any remuneration from any employer connected to the CFSP. That said, the Ombudsman did stress that a statutory right to take a CETV could not be removed by regulatory or indeed any other guidance.
The Scheme rules on the other hand made a transfer to a registered pension scheme mandatory on request so long as it was not an unauthorised payment.
In questioning Active SSAS's status as administrator of the CFSP, Prudential had not requested to see the deed appointing it. Therefore there was nothing to substantiate their assumption that Active SSAS was not a trustee or that CFSP was not properly registered by it as a result. The CFSP was a registered pension scheme and on the facts there was no reason for Prudential to object to the transfer as being an unauthorised payment. Prudential should therefore have complied with Mr Harrison's request.
The Ombudsman also noted that:
"Strictly the Pensions Regulator's statements about trustees are not relevant at all. But the guidance was endorsed by the FSA, so it is understandable that Prudential, in managing the Plan, would have had regard to it – as well as to the earlier guidance for members issued by both the Pensions Regulator and the FSA."
The Ombudsman reiterated that where established, a statutory right took precedence over regulatory guidance or rules if there were any inconsistency. Prudential could possibly have refused the transfer if it held an honest belief that the transfer was not in Mr Harrison’s best interests, but this was not one of the reasons they had given for declining his request.
As a result the Ombudsman held that Prudential had given unsatisfactory reasons for refusing the transfer. Its belief that the transfer was for pension liberation purposes was unsubstantiated and it had not carried out a detailed analysis in order to establish whether it was a "proper destination for a transfer to which Mr Harrison had a legal right".
Further, following a significant delay, Mr Harrison was only given generic reasons for the rejection of request and Prudential had not asked him to provide any evidence that would have allayed their fears.
The Ombudsman held that the burden was on Prudential to satisfy itself that he did not have a statutory or contractual right to transfer, including whether the transfer was an authorised payment. It should have not automatically have regarded the CFSP's registration as invalid but could have brought the matter to HMRC's attention; "unless it was withdrawn, the [CFSP] was a registered pension scheme".
As a result the Ombudsman directed Prudential to pay to the CFSP the higher of the transfer value backdated to 31 July 2013 (plus simple interest) or the current transfer value.