The Pensions Ombudsman has recently taken a hard line on trustees by upholding complaints about delayed transfer value payments, even when the payments were made before the statutory deadline.
The right to transfer
Most members of occupational pension schemes have a right to transfer their benefits to another pension arrangement. This exists as an overriding statutory right in law and also frequently as a right within a pension scheme’s rules.
Following the recent introduction of increased flexibility in Defined Contribution (DC) schemes, commentators are debating whether the new defined contribution freedoms will see a flood of transfer requests from members.
The statutory timeframe
Trustees who receive a transfer request from a member in respect of defined benefits must transfer those benefits within six months of the guarantee date that is provided in the member’s statement of entitlement.
In two recent determinations, the Pensions Ombudsman has found trustees to be guilty of maladministration when making transfer payments. Yet in both cases the payments were made within the statutory timeframe. In both cases the Ombudsman imposed his own much tighter timescales on the trustees.
In the first case, the Ombudsman stated that “my view is that one month…would have been reasonable time”. He required the trustees to make good the loss the member had incurred, which he would not have suffered if his funds had been invested in the receiving scheme on 1 August. As the trustees only received the member’s discharge forms on 9 July this is a very tight timescale. However in this particular case, there had been considerable correspondence regarding the proposed transfer in the period up to 9 July, so the Ombudsman’s conclusion that it was reasonable to make the payment within one month is not hugely surprising in the circumstances. Nevertheless, the decision is sounds a warning for trustees that they should act with all due speed in processing transfer requests.
In the second case, the Ombudsman found trustees guilty of maladministration because, after requesting HMRC guidance on the proposed transfer of a pensioner’s benefits, it took them six weeks to consider HMRC’s response and request further guidance. The Ombudsman recognised that the issues in this case were complex and that it was reasonable to seek guidance from HMRC. However, there were points within the timeline of events where the Ombudsman felt action should have been taken sooner. The case reinforces the need for trustees to act quickly at each stage; even though the statutory deadline was met, the Ombudsman was willing to find maladministration because of delays at specific stages in the process.
How should trustees respond?
The introduction of a requirement to confirm that members have obtained independent financial advice and the growing concern over transfers to fraudulent “pension scam” schemes means trustees have to be particularly careful. Yet how can they take the time to carefully consider a transfer request if the Ombudsman may find their processes to be too slow?
The answer lies in the process and in the paperwork trail. First, trustees need processes for dealing with transfer requests and should ensure that each stage is completed as quickly as possible. Strict compliance with the statutory deadline may not be enough.
Delays are often inevitable where complex issues are involved so, when they do occur, trustees should record the reasons and be able to explain to members that every step within their control has been completed within a reasonable period.
If trustees are unsure about their processes or about the circumstances of a particular case they should seek advice at an early stage to try and avoid experiencing the Ombudsman’s new harder line on these matters at first hand.
 Pension Schemes Act 1993