Our June Briefing concentrated on managing the DB risk. In particular employers are showing renewed interest in promoting transfers from DB to DC schemes. Enhanced transfers/inducements to transfer can be an emotive subject for employers, trustees and members and so a firm grasp of the legal fundamentals is essential.
The legal issues include Data Protection issues around the membership records; the employer’s duty of good faith; the role of the IFA; and FSA requirements. Some of these themes will be explored in more detail at Westminster & City’s conference on Pension De-Risking on 1 – 2 October 2008 where Clive Weber is one of the speakers (www.westminsterandcity.co.uk).
The bottom line is that inducements can be legally valid in appropriate circumstances and if properly structured. Otherwise the Pensions Regulator would have long since banned such inducements. Some insurers have called into question whether enhanced transfer values are appropriate. Although insurers say they have members’ best interests in mind, the fact remains that the more members who transfer from DB to DC the less scope there is for buy-outs with insurers.
The mention of DB to DC transfers brings echoes of the pension mis-selling ‘scandal’ in the late 1980s and early 1990s. Could enhanced transfers lead to a new wave of mis-selling claims? Where negligent advice is given, when does the damage occur and the right to sue arise? Is it when the transfer takes place or when the DC investment plummets in value? These questions were considered in the Court of Appeal’s decision in July 2008 in Shore v Sedgwick Financial Services Limited.
Having obtained advice and agreed to a DB to DC transfer in 1997, Mr Shore started High Court proceedings against his financial advisers in 2005. Normally actions for negligence should start within six years of the act or mission complained of, or if later within three years of the claimant becoming aware of his potential claim. Mr Shore argued the six years should run not from the transfer date of 1997 but from May 2000 when his pension was reviewed and a significant drop in income from his personal pension due to lower annuity rates was identified. The Court of Appeal held that the six years ran from the transfer in 1997 and accordingly Mr Shore’s claim was out of time.
Alternatively, Mr Shore argued that he had commenced proceedings in time as he had become aware of the incorrect transfer advice only when he was so advised in 2004 by his Solicitors. The Court held that he had sufficient knowledge that he was going to suffer loss by the year 2000 and so, by 2005, he was well out of time to bring proceedings under the three year limit.
The lesson here for potential claimants is not to delay taking action if you consider you have been ill advised. For employers, trustees and IFAs the approach to time limits is somewhat reassuring.