Pensions Ombudsman rules on transfer requests
Introduction
The Pensions Ombudsman has published decisions in three cases which relate to the refusal by different pension providers to action members’ transfer requests. In each case, the providers had grounds for concern that the proposed receiving schemes were involved in pension liberation activities.
In this Alert
- Key points
- The latest Pensions Ombudsman decisions
- What to consider on receipt of a CETV request
- Supervision by TPR and the FCA
- Time limits and failure to comply
- Comment
Key points
- There are a significant number of pension liberation complaints currently before the Pensions Ombudsman. Most relate to transfer requests that have been turned down by the pension scheme provider or trustees. A smaller number relate to transfers which have taken place, as a result of which some or all of the money has been lost.
- Trustees need to focus on the statutory requirements for implementing a CETV. If they reject an individual’s request, they need to be able to demonstrate why the request did not meet these criteria.
- It is not sufficient to make assumptions about a proposed receiving scheme based solely on potential indicators of pension liberation activity.
- The Ombudsman sets out in detail the relevant considerations for trustees in deciding whether to implement a CETV.
The latest Pensions Ombudsman decisions
The Ombudsman has published decisions in three cases relating to requests for a CETV that had been turned down by the provider concerned:
- Mrs Kenyon (Zurich Personal Pension (no.1A))
- Mrs Jerrard (Aviva Pension Scheme)
- Mr Stobie (Standard Life Self Invested Personal Pension Scheme).
In all three cases, the Ombudsman found that there was no entitlement to a statutory CETV because the legal requirements for a request for a CETV had not been met. However, none of the providers had carried out the necessary checks to establish this fact, nor had they informed the individuals concerned that they lacked a statutory right to a transfer.
The Ombudsman has set out the steps that trustees and others need to go through, including the questions that need to be asked, before a decision can be reached as to whether a CETV request can be processed.
What to consider on receipt of a CETV request
Is there a statutory right to a CETV?
The starting point for trustees is that they have a duty to carry out a CETV where the legislative requirements are met.
To satisfy the statutory requirements for a CETV, the transfer must be to a registered occupational or personal pension scheme. The proposed receiving schemes in the above cases all purported to be occupational pension schemes.
The tests as to what constitutes an occupational pension scheme were considered in detail in the 2013 High Court case of Pi Consulting (Trustee Services Ltd) and Dalriada Trustees Limited v TPR and others. In summary, to be an occupational pension scheme, a scheme must have been 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 “purpose issue”); and
- by, or by persons who include, a person to whom section 1(2) of the Pension Schemes Act 1993 applied when the scheme was established (broadly, where there is an employment relationship) (the “founder issue”).
Will the CETV be used to secure transfer credits in the receiving scheme?
The CETV must be used for acquiring “transfer credits” in an occupational pension scheme or “rights” under a personal pension scheme.
Key aspects of the above cases were the employment relationship and the need for earnings from a scheme employer. In the context of an occupational pension scheme, the Ombudsman was of the view that a person would need to be an “earner” in relation to a scheme employer in order to meet this test. If a person with earnings from any source could join an occupational pension scheme, that scheme would not satisfy the tests outlined in the Pi Consulting case.
Is the transfer request consistent with pensions tax legislation?
Pension liberation can often involve a transfer with a view to obtaining access to pension savings before the normal minimum pension age under the tax rules, currently 55, or to take a larger cash lump sum than is currently permitted.
One condition of registration with HMRC is that scheme rules do not entitle a person to “unauthorised payments”. Authorised payments are listed in the Finance Act 2004 and include recognised transfers – the transfer of sums or assets to another recognised scheme or to a qualifying recognised overseas scheme.
Transfers which do not satisfy the pensions tax rules will be treated as unauthorised payments and can attract significant tax charges, both for the transferring scheme and for the member.
Establishing the right to a CETV
The key issue is the need to be satisfied of an individual’s right to a statutory CETV “on the balance of probabilities and a correct interpretation of the law, based on such evidence as they can obtain from the member or receiving scheme or other sources”. Where the trustees or provider find no statutory right to a CETV, they need to communicate this to the member and justify their decision in accordance with the relevant legislation.
If there is no statutory right to a transfer, trustees or providers should then go on to consider whether there is a freestanding right under the scheme rules to make a transfer.
Supervision by TPR and the FCA
TPR has produced guidance on pension scams for individuals, trustees and their business advisers, with input from the FCA and HMRC, as well as Action Fraud. In addition, the FCA has produced guidance for consumers and HMRC has produced guidance on early release pension schemes and the tax rules.
TPR’s guidance includes a checklist which sets out a number of points which should be verified in establishing the validity of a proposed receiving scheme. As TPR notes, answering “yes” to any of the questions individually does not necessarily indicate a pension scam, but if several features are present, there may be cause for concern.
A common theme in the Ombudsman’s latest decisions is that the providers had not asked the questions set out in TPR’s checklist. Instead, the Ombudsman concluded that the providers had gone beyond the scope of the guidance by making assumptions based on their initial enquiries which led them to believe that the proposed receiving schemes were involved in pension liberation.
Instead, the Ombudsman found that the providers should have checked their findings by asking questions of the individuals who had requested the transfers and of the proposed receiving schemes. This would have helped them to work out whether the requests fulfilled the CETV criteria.
Time limits and failure to comply
Broadly, transfers must be carried out within six months of the member’s application or, in relation to an occupational DB scheme, within six months of the guarantee date of the CETV. This can be extended on application to TPR. TPR must be notified when a CETV is not paid.
TPR has power to impose civil penalties on trustees or managers who do not take steps to comply.
Comment
The Pensions Ombudsman’s decisions in these cases hinge largely on the issue of process, rather than on the outcomes themselves.
The difficulty in many cases is that trustees and providers are faced with an arrangement that is ostensibly an occupational pension scheme. As the Ombudsman’s recent decisions illustrate, further enquiries may be needed to establish whether all the elements needed for a statutory CETV are present.
The Ombudsman is sympathetic to the “highly unenviable” position of trustees, pension providers, managers and administrators in deciding whether a request should be complied with, delayed pending further investigations and/or potentially refused. However, in his view, once the trustees or provider have followed all the relevant steps, “the individual’s right to make what might be a life-changing mistake must take supremacy over [the trustee or provider’s] obligation to help them not to”.
See our Alerts Pension liberation: Latest news and Pension liberation: What trustees need to know for more details on TPR’s checklist and the steps for trustees where they suspect pension liberation.