Mr W’s complaint that his transfer request had been unnecessarily delayed as a result of the Trustee requiring him to seek specified guidance from Moneyhelper was not upheld by TPO.
The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (“the Transfer Regulations”) came into force on 30 November 2021 and apply to transfers initiated on or after that date, restricting the statutory right to transfer unless certain conditions are met. Depending on the circumstances, this includes assessing whether any red or amber flags are present.
A red flag stops the statutory transfer whilst an amber flag pauses it, pending the member taking specified guidance from MoneyHelper before the trustees can make the transfer. (See our Alert and Hot Topic for further details).
Regulation 9(5)(d) states that there is an amber flag present where the trustees of the transferring scheme decide that “there are any overseas investments included in the receiving scheme” (“the overseas investment flag”). Legal commentary at the time included views that this amber flag was broader than intended and, in practice, there has been little consistency on how it is applied. A number of schemes have identified an amber flag in most, if not all, cases where they consider an overseas investment is present, while others have taken an alternative approach where the level of perceived risk is low.
It was against this backdrop that the Trustee in this case was dealing with Mr W’s transfer request.
Since Mr W’s transfer in May 2022 there have been attempts to clarify the intended meaning of the overseas investment flag but, as there has been no change to the Transfer Regulations themselves, there remain different approaches on how it is applied in practice.
On 5 July 2022, TPR and the DWP issued a joint statement acknowledging the concerns about the overseas investment flag and noted that TPR has made changes to its guidance to enable trustees to consider granting a discretionary transfer where there are overseas investments but the transfer is at low risk of a scam and the scheme rules allow.
On 21 June 2023, the DWP issued a report noting feedback that the overseas investment amber flag needs to be more clearly defined or removed since as it is structured it can mean that an amber flag needs to be raised, even when schemes have no concerns. The report notes that the DWP is carrying out further work with the pensions industry and TPR “to consider if changes could be implemented to the regulations to improve the pension transfer experience, without undermining the policy intent”.
Mr W requested a transfer of his benefits to a UK registered pension scheme on 21 February 2022. As part of the Trustee’s due diligence, it received information that the receiving scheme included a fund which “invests in shares of smaller companies from developed countries around the world”. On 14 April 2022, the Trustee notified Mr W that an amber flag was present and referred him to MoneyHelper for a safeguarding appointment. It also advised Mr W’s financial adviser that appointments were available all day on 26 April 2022.
Mr W’s financial adviser disagreed that a MoneyHelper appointment was necessary and emailed the Trustee on 14 April 2022 to complain. On receipt of this complaint, the Trustee sought further legal advice on the interpretation of the Transfer Regulations which confirmed that “a referral to MoneyHelper is required where “there are any overseas investments included in the receiving scheme”.
Mr W attended a MoneyHelper appointment on 13 May 2022 and the transfer was made on 27 May 2022 by which point the transfer value was less than the previous forecasts provided to Mr W.
Mr W complained that the Trustee did not correctly interpret the Transfer Regulations, causing his transfer request to be unnecessarily delayed resulting in loss (a reduction in his transfer value), financial hardship and delay to his retirement plans.
TPO concluded that the Trustee had not acted unreasonably in determining that an amber flag was present and therefore its actions had not caused unreasonable delay.
TPO noted that the decision on whether there are overseas investments in the receiving scheme is for the transferring trustees and that if trustees “have reason to believe” there are such investments, then an amber flag is present, and the member must obtain specified guidance from MoneyHelper before the trustees can make the transfer.
Although “it appears that the wording of the Transfer Regulations and intended practical application may not be aligned”, on the basis of the evidence it received, the Trustee was entitled to conclude there were overseas investments in the receiving scheme and “its literal interpretation of the Transfer Regulations is not unreasonable”. Therefore, it was not unreasonable to require Mr W to obtain the specified guidance from MoneyHelper and there was no action that caused an unreasonable delay to Mr W’s transfer. Accordingly, the Trustee’s actions did not equate to maladministration.
TPO noted that regard was given to the fact the Trustee had sought legal advice on the interpretation of the Transfer Regulations.
In practice, this decision will be likely:
From a legal perspective, however, while TPO decided the Trustee had acted “reasonably” in this case, he did not go so far as saying that the Trustee acted “legally correctly” or that the Transfer Regulations must be construed as requiring a MoneyHelper appointment in all similar cases.
As a result, it might be implied that he would have taken the view that it would equally have been reasonable in this case to have accepted the member’s/his financial adviser’s views and to have processed the transfer without that appointment.
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