Pension liberation is a scam in which members are encouraged to transfer their pension savings to a bogus pension scheme, which may be set up in the name of a non-existent employer, with the promise of being granted access to their pension savings before the normal minimum retirement age for retirement laid down by law of age 55. Pensions liberation is often accompanied by illegal practices, and it will trigger tax charges which the member must declare and pay to HMRC.

It is not a new practice – having been around for over a decade in various forms - the Pensions Regulator and Financial Conduct Authority have taken steps to publicise the problem see our previous update.

There are currently around 140 cases with the Pensions Ombudsman concerning pensions liberation and the Ombudsman has just issued his first four determinations. The first concerns a member trying to transfer out of a pensions liberation scheme. The remaining three deal proposed transfers which were blocked by insurers because they believed that the transfer would be to a liberation scheme.

A key issue in all of the determinations to date is that members of pensions schemes have a statutory right to transfer under the Pension Schemes Act 1993.

The Capita Oak Scheme – Mr X (PO-3590)

Mr X, an NHS worker transferred his pension to a liberation scheme, the Capita Oak Scheme1, having apparently been persuaded that it offered investment returns of between 8% and 12%. The complainant said he received a “nonrepayable loan” of GBP 17,500 from Imperial Trustee Services Ltd (ITSL), the trustees of the scheme, who took a fee of 5% of the transfer value together with other deductions.

He became concerned about the security of his savings, which he was told had been invested in a storage company. When he notified ITSL of his wish to transfer back out of the scheme some four months after the initial transfer, there was no reply. A second letter a month later was also ignored. ITSL failed to respond to communications from the Ombudsman.

The Ombudsman eventually received a letter from an accountancy firm which stated it had been asked by ITSL’s director to investigate the scheme’s finances. It also said Mr X’s money could not be returned at present, as all the scheme assets were invested in the same storage company.


The Pensions Ombudsman decided that Mr X had failed to make a valid request to transfer under the Pension Schemes Act 1993. However, the Ombudsman clearly took a dim view of ITSL’s failure to respond to Mr X’s communications. Had the ITSL done so, the Ombudsman concluded, a full request would have been made within a month of the first letter being sent and a transfer to another pension within six months of the request.

ITSL has been ordered to pay the higher of: the cash equivalent value as at 30 September 2013 plus interest from that date to the date of payment, or the current cash equivalent value. The Ombudsman acknowledged that the complainant could enforce the ruling in the courts, but that he may ultimately fail to recover his investment - which was originally worth around GBP 370,000.

Transferring into a liberation scheme - Stobie (PO-3105) Kenyon (PO-1837) (Jerrard, PO-3809)

These three cases all concern members wishing to transfer out of personal pension schemes which were blocked by the insurers (Standard Life, Zurich and Aviva). The reasoning is similar in all three cases – indeed the first 10 pages of the Determinations, setting out the legal and regulatory background, are virtually identical.

The key issues concerned whether there was a statutory right to transfer under the Pension Schemes Act 1993. In turn, this required consideration of Pi Consulting (Trustee Services) Ltd v the Pensions Regulator [2013] EWCH 3181 Ch. Pi Consulting and Dalriada Trustees had been appointed by the Pensions Regulator as independent trustees to suspected pensions liberation schemes in order to protect the interests of the members. However, the question arose as to whether the pensions liberation schemes were “occupational pension schemes” as defined under section1 of the Pension Schemes Act 1993. It was held that there were two issues to be considered when determining whether a scheme satisfies the definition of an occupational pension scheme:

  • The purpose issue. Was the scheme established “for the purpose of providing benefits to, or in respect of, people with service in employments of a description or for that purpose and also for the purpose of providing benefits to, or in respect of, other people”?
  • The founder issue. Was the scheme established by, or by persons who included, a person to whom section 1(2) of the Pension Schemes Act 1993 applied when it was established?

Mr Stobie

Mr Stobie wished to transfer his accrued rights under a self-invested pension plan (SIPP) set up in 2004 by Standard Life (the Trustees and administrators). In May 2013, when he was 45, he wrote to the Trustees requesting that the proceeds of the SIPP be transferred to the Shredded Image Pension Scheme. He also asked to be informed if the request could not be carried out within five days.

The arrangement to which Mr Stobie wished to transfer had been established and registered less than three months before the date of his request. The sponsoring employer of the Scheme and the original trustee (respectively Shredded Image Limited and Redkite Fiduciary Services Limited) were both incorporated in early 2013. Shredded Images was registered at Mr Stobie’s residential address, while Redkite was registered at another residential address in East Sussex, where various other companies were also registered.

Standard Life considered that the fact pattern bore many of the hallmarks of a suspicious pensions liberation scheme, as listed in guidance published by the Regulator (such as a request for a quick transfer). It rejected Mr Stobie’s request and maintained its position despite subsequent letters of complaint from Mr Stobie.

In submissions to the Ombudsman, Standard Life reiterated its concerns about the arrangement and added that the request had not provided a plan number for Mr Stobie and that there was no indication how the money was to be invested. Nor was there any information about Shredded Image Limited.

Mr Stobie said had been working for himself for ten years. This explained why Shredded Image was registered to his home address, which was also his office. The scheme had been set up for self-investment in Shredded Life, a software  development and IT consultancy business, and to provide for his own retirement. As to the address of the trustee company, he explained this was the address of the trustees’ accountants. As a one-man scheme, Mr Stobie pointed out, the Scheme is not required to have a plan number, or to be registered with the Pensions Regulator.


The Ombudsman considered whether Mr Stobie had a statutory right to transfer, which in turn meant considering whether it satisfied the definition of occupational pension scheme following Pi Consulting. After reviewing the rules of the Shredded Image Pension Scheme, the Ombudsman concluded that it did.

However, the Ombudsman concluded that there was no statutory right to transfer because Mr Stobie was selfemployed and therefore not in any “employments of a description” in relation to the Shredded Image Pension Scheme.

The rules also gave Standard Life discretion to make a transfer and the Ombudsman found that they had not properly given consideration to that discretion. He therefore ordered that Standard Life reconsider whether to allow a transfer (if Mr Stobie requested), but there is a strong suggestion that Standard Life could – having properly considered it – decide that no transfer was appropriate.

Mrs Kenyon

Mrs Kenyon, who was 42 years old, had a personal pension with Zurich. She wanted to transfer her pension savings to Axiom Umbrella Pension Trust (Axiom UPT). The trust was established in August 2012 by a company based in Belize, Sartori Limited. Companies described in the trust deed as the “Original Trustees” and “the Protector” were also registered in Belize. It was registered with HMRC in September 2012, shortly before the transfer request was made.

Zurich received a letter in November 2012 from Business Law Ltd, a UK-registered company named in a deed of amendment to the trust as responsible for establishing and administering Axiom UPT. Two documents were enclosed: a transfer request signed by Mrs Kenyon but apparently dated by another person, and a transfer claim form requested from Zurich by Mrs Kenyon in an earlier telephone call. The latter form requested Mrs Kenyon’s transfer payment to be made payable to Business Law.

Zurich wrote to Mrs Kenyon seeking confirmation she had not been offered a cash incentive by the Axiom UPT. She responded, asking them to process the transfer and stating that she had not received a cash incentive. Zurich said it could not proceed with her request because it could not  be certain the transfer would be treated as a “recognised transfer” under section 169 Finance Act 2004. Mrs Kenyon sent complaints to Zurich, which re-stated its position under the Finance Act.

In submissions to the Ombudsman, Zurich highlighted promotional material that claimed the Scheme allowed members access to their pension at any age, tax free, as well as negative reports in the press relating to the high fees charged by Axiom UPT.


The Ombudsman held that the correct approach was to ascertain whether Mrs Kenyon had a statutory right, and to inform Mrs Kenyon in its correspondence that it needed to confirm whether she was so entitled before proceeding. Zurich should have applied the tests laid down in Pi Consulting, from which they would have been able to satisfy themselves that Axiom UPT was not an occupational pension scheme. The Ombudsman’s analysis on this point relies on technical flaws in the Axiom UPT’s rules, which did not specify the employments in respect of which members were provided with benefits. As such, the Scheme failed the “purpose” test.

The Ombudsman therefore rejected the complaint, but was critical that Zurich did not apply a rigorous analysis to justify the conclusion that there was no right to transfer.

Mrs Jerrard

The Ombudsman again carried out a careful analysis of whether Mrs Jerrard had a statutory right to transfer. Considering the rules of the receiving scheme – the SCCL Pension Scheme - the Ombudsman concluded that it failed both the “purpose” and “founder” tests. The Ombudsman commented that in this case the scheme rules were drafted in such a way that he could not identify any employments, let alone “employment of a description”.

However, again, although rejecting the complaint, the Ombudsman held that Aviva had not carried out the correct analysis to come to the conclusion that the transfer should not proceed.

Capita Oak Scheme - Pensions Ombudsman press release

On 28 January 2015, presumably in the light of the publicity of these decisions, the Pensions Ombudsman issued a press release. This confirmed that the Ombudsman was investigating one complaint by a member who had transferred to a pensions liberation scheme, but was now arguing that the transfers should have been blocked by the original scheme’s trustees or managers. The Ombudsman was aware that other similar complaints were being considered (including in relation to the Capita Oak Scheme).

The Ombudsman indicated that his determination in that complaint should be issued in the first half of 2015. Although it would not be binding on other complaints it would give a good indication of the general approach. The Ombudsman confirmed that any new complaints on similar grounds would simply be “parked” pending his determination; but that he would not take the time from the press release until the determination is published into account when determining whether a complaint had been made to the Ombudsman in time.

Clyde & Co comment

The Ombudsman notes the difficulties that insurers and trustees face in dealing with these requests for transfers. Similarly the Ombudsman is walking a tightrope between the apparent statutory right to transfer and the concept of acting in the best interests of the members. It is clear from these decisions that in the Ombudsman’s eyes the statutory right cannot be overridden by more general considerations of acting in the member interests or treating customers fairly.

So what should insurers or trustees do when faced with a potential transfer to a pensions liberation scheme? In addition to following the Pensions Regulator’s guidance, it is clear that there should be a very careful consideration of the rules of the receiving scheme to see whether there exists any right to transfer – either statutory or a discretion under the existing scheme rules. If a transfer is refused a clear audit trail should be kept explaining the reasons why.

The acid test for the remaining determinations will be when there is a right to a transfer. Should it proceed even where there are concerns about liberation? These decisions would suggest it should and we perhaps already have an idea where the Ombudsman might head in the determination referred to in his press release. But a key issue may be whether the trustees or manager of the transferring scheme went through a robust due diligence process before allowing the transfer to proceed.