The Pensions Ombudsman has published three determinations relating to pensions liberation, following on from the publication of his December 2014 decision in respect of Mr X. The combined effect of these cases is that trustees and administrators will now have much clearer guidance as to how to process transfer requests where pensions liberation is suspected.
How should transfers be processed?
The implications of the Ombudsman’s decisions are that when dealing with transfer requests, trustees and administrators must consider both the legislative position and the position under the scheme rules. Where the member has a statutory right to a transfer or a right to a transfer under the scheme rules and all specified conditions have been met then the trustees /administrator will generally need to pay the transfer. Simply suspecting that the receiving scheme is a pensions liberation vehicle will not be sufficient grounds to refuse. Where a transfer out request is refused because there is no right to it, this decision should be capable of being justified.
Trustees and administrators also need to consider the scheme rules to determine if the member has a discretionary right to a transfer out. If so, the trustees / administrator need to give due consideration to exercising that discretion.
What were the cases about?
The three cases were brought by members of different personal pension schemes who had had their transfer out requests to registered ‘occupational pension schemes’ denied. In two of the cases the members could only request a transfer where they had a statutory right to do so. In the third case, the member also had a discretionary right to transfer out, subject to the agreement of the administrator. In all three cases the providers refused the transfer out request because they suspected the receiving schemes were pensions liberation vehicles.
In each of the Ombudsman’s decisions he made clear that the providers had not asked the right questions or carried out the right analysis in determining whether or not to refuse the transfer requests.
In all three cases, the Ombudsman concluded there was no statutory right to a transfer and this was the ground on which the transfer requests should have been refused. In two of the cases, the main reason for concluding there was no statutory right to a transfer was that the receiving schemes did not meet the legislative definition of an ‘occupational pension scheme’, essentially the “schemes did not identify a clear class or ‘description’ of employments of the people that they were to provide benefits for.” In the third case, whilst the receiving scheme did meet the “occupational pension scheme” requirements, the complainant was not an ‘earner’ in respect of it.
As mentioned, in the third case there was a discretionary right to transfer out in addition to the ability to transfer out where there was a statutory right to do so. The Ombudsman partially upheld the complainant’s claim with regards to the discretionary right as he determined that the provider had not considered this at all and so had not exercised its discretion appropriately.
In each of the three determinations the Ombudsman made a number of general comments with regard to transfer out requests where pensions liberation is suspected, confirming that it is for the trustees and administrators to satisfy themselves that there is no right to a transfer rather than for the member to prove that there is. Whilst trustees and administrators may be reluctant to give reasons for refusing a transfer request as it may aid those involved in pensions liberation, some form of explanation should be provided.
These decisions, along with the Pensions Regulator’s pension liberation publication aimed at assisting pension professionals where pension liberation is suspected, provide a helpful checklist for trustees and administrators to determine whether to agree to the transfer request. It is also helpful that it has finally been confirmed that where the member has a legal right to a transfer payment, it should be made.
A deluge of complaints
These determinations have made only a very small dent in the number of cases the Ombudsman has to consider on pensions liberation: as at October 2014 the Ombudsman confirmed he had received over 140 complaints. Whether the remaining cases will provide any additional assistance to trustees and administrators when processing transfer requests remains to be seen. In the meantime, the Pensions Regulator has announced that it will shortly be consulting on new guidance for trustees of final salary schemes dealing with transfer requests which will encompass current provisions and also address the main changes arising from the Budget.
Whilst trustees and administrators may finally have some clarity on dealing with transfer requests where pension liberation is suspected, a whole new can of worms is likely to be opened up by the pension flexibilities introduced in the Budget. Should trustees and administrators try to protect members where they suspect a scam? How would they do this? We suspect the Ombudsman may not be able to reduce his backlog of pension liberation cases any time soon.
 Kenyon (PO-1837), Jerrard (PO – 3809) & Stobie (PO – 3105)