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A recent High Court case[1] has dealt a further blow to the Pensions Regulator’s campaign against pension scams. Trustees may now be unable to refuse a member’s request to transfer benefits to another pension scheme, even if they have concerns that the receiving scheme might be a scam.

Pension scams – what are they?

‘Pension scams’ is a term used by the Regulator. Broadly, it describes the process of encouraging a pension scheme member to access their pension benefits when they are under age 55 and not in ill health. Members targeted by this process are generally unaware that accessing their benefits in this manner can result in a punitive 55% tax charge. The Regulator has published detailed guidance to help prevent individuals falling victim to scams.

There has been a stream of complaints to the Pensions Ombudsman by members against trustees and pension providers who delay or refuse transfer requests because of such concerns. This has ensured that scams have remained firmly in the spotlight. 

What was the issue in this case?

Ms Hughes requested that her pension provider, Royal London (RL), transfer her personal pension benefits to an occupational pension scheme (OPS). RL refused her statutory transfer request because it suspected that the OPS was a scam scheme, and in particular because Ms Hughes was not an ‘earner’ in relation to the OPS, as required by the relevant legislation.

Ms Hughes also suggested that RL had improperly exercised its discretion under the rules of the personal pension scheme by refusing to transfer her benefits to the OPS.

Ombudsman decision

In June 2015 the Ombudsman concluded that RL was correct to block the transfer. He stated that the legislation relating to statutory transfers required the member to be an earner in relation to the OPS scheme employer, which she was not. Ms Hughes appealed the Ombudsman’s decision to the High Court on a point of law. 

High Court decision

The Court considered that in stating that the member must be an earner in relation to the OPS scheme employer, the Ombudsman had read words into the definition of ‘earner’ which were not there. She had merely to be an earner, rather than being an earner in relation to that particular employer. The Court held that even though Ms Hughes received no earnings from the OPS employer, her earnings from another source at the time of the request was sufficient for the definition of earner to be satisfied.

Unfortunately for the pensions industry, the question of whether RL had properly exercised its discretion under the personal pension scheme rules by refusing to make the transfer was not considered by the Court. Clarity on this issue would have provided welcome guidance for trustees and pension providers.

What does the decision mean for trustees and pension providers?

The Ombudsman welcomed the clarity given by the High Court, which will have an immediate impact on around 200 of his live cases.[2] The decision means that trustees and providers will not need to ensure that a member is in receipt of earnings from the receiving scheme’s sponsoring employer when considering whether to grant the transfer. The member need only be an ‘earner’ in a more general sense.

Our previous blogs have referred to other pension scam cases; those cases have clarified that in considering a transfer request, trustees should:

  • satisfy themselves that there is no right to a transfer rather than requiring the member to prove that there is;
  • consider relevant legislation and the provisions in the scheme rules on transferring member benefits;
  • ask the correct questions and undertake appropriate analysis in considering transfer requests;
  • consider the Regulator’s pension scams checklist; and
  • be aware of HMRC’s additional powers in this context given by the Finance Act 2014.

Vigilance required

Trustees should continue to be vigilant in this area. Acting in the best interests of members will mean alerting members to the potential for scams in line with the Pensions Regulator’s detailed guidance.

Given the number of pension scam cases in the Ombudsman’s in tray, trustees should be aware that this is unlikely to be the last guidance on the subject!

This post was contributed by Suresh Bhatt. For more information, email

[1] Donna-Marie Hughes v The Royal London Mutual Insurance Society Limited

[2] PO Statement dated 22 February 2016

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.