Pensions liberation: High Court overturns the Pensions Ombudsman’s decision in Hughes

On 19 February 2016 the High Court handed down its judgment in Hughes v Royal London.  This case had attracted a lot of attention, as it was an appeal from a decision of the Pensions Ombudsman regarding a blocked transfer request.

The effect of the High Court’s decision is that it is no longer open to administrators and trustees to block transfers to suspected pensions liberation vehicles on the grounds that (and assuming that the other requirements for a statutory transfer are made out) the member is not in receipt of earnings from a sponsoring employer of the receiving scheme.

Controversially, this is likely to make it more difficult for trustees and administrators to block transfers to suspected pensions liberation schemes in future.


Sections 94–95 of the Pension Schemes Act 1993 set out the circumstances in which a member of a pension scheme has a statutory right to take their cash equivalent transfer value (CETV).  A transfer to an occupational pension scheme must be used to acquire “transfer credits”, defined as rights allowed to an “earner”: a member only has a statutory right to transfer their benefits to an occupational pension scheme if they are an “earner” under it.  

In July 2014 Ms Hughes applied to transfer her benefits from the Royal London Personal Pension Scheme (Royal London) to an occupational pension scheme apparently set up for her benefit (theReceiving Scheme).  Ms Hughes had an employment contract with the Receiving Scheme’s principal employer, but that employer did not trade and Ms Hughes did not receive a salary from it. In fact, Ms Hughes had earnings from another source.

The administrators of Royal London refused Ms Hughes’ transfer application (expressing concerns regarding pensions liberation), and in June 2015 she appealed to the Pensions Ombudsman.

The Pensions Ombudsman took a narrow interpretation of the term “earner” and found that Ms Hughes did not have a statutory right to transfer her benefits from Royal London because she did not receive a salary from a sponsoring employer of the Receiving Scheme:

Although there is nothing in the legislation that expressly states that Miss Hughes’ status as an earner had to be in relation to a scheme employer, I find that it did.  It would be a very strange result if people… who were earners in some other context (with earnings, however small or irregular, from some completely unconnected enterprise) could require a transfer value to be paid… It would give the reference to ‘earner’ arbitrary consequences if it just means a person with any earnings from any source.”    

The Court application

Ms Hughes appealed the Pensions Ombudsman’s decision to the High Court.

The question before the Court was simple: what was required for Ms Hughes to be an “earner” in relation to the Receiving Scheme; did she need to receive income from a sponsoring employer of the Receiving Scheme, or would pay from any employer suffice?

The Court overturned the Pensions Ombudsman’s decision, holding that Ms Hughes qualified as an “earner” with a statutory right to transfer her CETV from Royal London to the Receiving Scheme: sections 94–95 Pension Schemes Act 1993 did not explicitly state that her earnings had to be from a Receiving Scheme employer and it was not the Judge’s role to bend the interpretation of these provisions so far as to create “judicial legislation”.


The Pensions Ombudsman’s previous determination was understandable given the broader context of pension liberation risk, as it allowed trustees and administrators to refuse transfer requests to potentially dubious schemes on the basis that there was no proof of earnings from a scheme employer.  Now, that factual hurdle has been removed.

This is, in many ways, a difficult decision for pension scheme administrators and trustees: it will not take scam artists long to realise that members now have a statutory right to transfer their benefits to a pensions liberation vehicle provided they have any source of employment earnings.

The Pensions Ombudsman has given a brief statement on the High Court’s decision, which will impact around 200 of its live cases.  He noted that, as most members making a transfer request will have some source of earnings, “beyond verification of earnings and the provision of risk warnings, trustees and administrators will be conscious that under current legislation they cannot refuse such a transfer – even if they have significant concerns that it may be for the purposes of pension liberation.”