UK: Roll Up, Roll Up, Anyone For A Transfer Payment? Oi! You! Not So Fast, Sunshine…

Last Updated: 1 December 2015
Article by Emily Matthews

QROPS have caused the pensions industry more than their fair share of trouble in recent months. In our last Bulletin we looked at the difficulty caused by HMRC's re-designation of them as ROPS. Now we focus on a specific case where a member's proposed transfer to a QROPS didn't quite go as smoothly as planned.

This case involved the complaint by a member that the scheme administrator had unreasonably delayed processing the payment of his transfer value. As a result of the delay, the transfer of the member's benefits was not completed before HMRC de-listed the Guernsey-based qualifying registered overseas pension scheme ("QROPS") which he planned to transfer to.

The Pensions Ombudsman dismissed the member's claim and held that the scheme administrators had valid reasons for delaying the payment of a transfer value. However, it was held that the scheme administrator's failure to keep the member updated and to provide him with reasons for the delay constituted maladministration.

The law on transfer values

Under the Pension Schemes Act 1993 (the "Act"), trustees or managers of a pension scheme must, on the application of a member, provide the member with a statement of entitlement in respect of their transferrable rights. A statement of entitlement is a written statement of the amount of the cash equivalent of the transferrable rights (known colloquially as a "CETV").

The Transfer Value Regulations 1996 (the "Regulations") require that the statement of entitlement must be provided within three months from the date of the member's application, or, where the trustees or managers of a pension scheme are unable to provide the statement within three months due to reasons out of their control, the period is extended to six months. The Act then provides that payment of the transfer value must be carried out within six months from the guarantee date specified in the statement of entitlement.

The facts

The member, Mr Brackley, was a member of the Travel Automation Systems Retirement Benefits Scheme (the "Scheme"). He requested a statement of entitlement on 20 June 2011. The Scheme administrator sent a statement of deferred entitlement, and cash equivalent transfer value statement together with the relevant transfer authority forms, to Mr Brackley on 19 January 2012 (three weeks after the six month statutory time period for provision of statements of entitlement had expired). This referred to a guarantee date of 6 January 2012 – the Scheme was therefore obliged by statute to complete the transfer by 6 July 2012. The Scheme administrator requested further information from the receiving scheme before they could process the transfer. They also warned that they may require additional information from Mr Brackley.

The Guernsey-based trustees, Bourse Pension Trustees Limited ("Bourse Trustees") were the trustee of the receiving scheme, the Bourse Retirement Trusts Scheme (the "Bourse Scheme"). Bourse Trustees received Mr Brackley's application forms on 13 February 2012 and "formally accepted" Mr Brackley as a member on 14 February 2012. Mr Brackley then organised all necessary documentation for the transfer.

On 23 February, Bourse Trustees sent the necessary transfer request documentation to the Scheme administrator. On 1 March 2012, the Scheme administrator contacted Bourse Trustees and requested further information in order to confirm Mr Brackley's identity and asked for certain HMRC forms to be completed. Bourse Trustees returned these to the Scheme administrator on 26 March 2012. Following this, Bourse Trustees then contacted the Scheme administrator several times over the next week for updates on the progress of the transfer.

On 5 April 2012 HMRC introduced new legislation, which provided that, essentially, Guernsey-based pension schemes were no longer classified as QROPS. The legislation came into force on 6 April 2012. As a result, Bourse Trustees were no longer able to accept a transfer of Mr Brackley's benefits. Any transfer to the Bourse Scheme would have been an unauthorised payment and, therefore, subject to considerable tax charges.

Mr Brackley's complaint

Mr Brackley complained that the Scheme administrator had unreasonably delayed in providing the transfer value quotation and when processing his request to transfer to the Bourse Scheme. Further, he claimed that there was no need for the Scheme administrator to have asked for him to provide proof of identity.

Mr Brackley claimed that he suffered a loss due to the delay, as the failure to transfer within the statutory time period led to a fall in the value of the transfer value of over £30,000. In addition, as he was unable to transfer to the Guernsey-based QROPS he would have to pay income tax on his pension benefits (which he would not have had to do had the transfer been made to the Guernsey-based QROPS).

Determination

The Ombudsman declined to uphold Mr Brackley's complaints.

Supplying the statement of entitlement

The Ombudsman noted that the Scheme administrator's failure to produce a statement of entitlement within the statutory period was a breach of the Regulations. However, it was held that there were 'valid reasons' for the breach.

For one, the Scheme was in the midst of an equalisation project (commenced before Mr Brackley's request) which involved the recalculation of member benefits and a GMP reconciliation exercise to ensure that the records accurately represented member entitlements. The second reason was that the Scheme had been considering whether CPI or RPI revaluation should apply to member benefits and their legal advisors only provided the advice in late December 2011 / January 2012. The Ombudsman held that these reasons for the delay were valid and noted that had they not been undertaken, then Mr Brackley's CETV would not have reflected the amended position and may have been incorrect.

However, the Ombudsman held that the Scheme's failure to provide reasons for the delay constituted maladministration. He noted that it would have been reasonable for the Scheme to have communicated reasons for the delay to Mr Brackley after three months had passed following the submission of his application.

But the Ombudsman held that Mr Brackley should not be awarded any compensation, as he had not suffered any injustice as a result of not receiving reasons for the delay. The Ombudsman considered that on the balance of probabilities, it was unlikely that Mr Brackley would have acted any differently had he been given reasons for the delay – in particular, he could not have predicted that QROPS were going to be delisted by HMRC. In addition, as Mr Brackley did not chase the administrators during the six month period, the Ombudsman concluded that this indicated how he had not suffered distress and inconvenience as a consequence of the delay.

Transfer process

The Ombudsman held that the transfer should have been carried out by 6 July 2012. However, as Bourse Trustees could no longer accept the transfer as of 6 April 2012, there was no breach of the statutory time limit.

In addition, the Ombudsman held that the scheme administrators had been entitled to ask Mr Brackley to confirm his identity, in the interests of paying the correct benefits from the Scheme.

What does this mean for trustees and administrators of pension schemes?

The Ombudsman's determination illustrates that although trustees and administrators must aim to provide transfer value payments within statutory time limits, there are occasions where it will be deemed reasonable for these time limits to be validly breached. However, if a breach occurs, trustees and administrators are expected to communicate this to the member, and explain why.

The determination also encourages us to consider more broadly the issues relating to transfer value payments between schemes. For example, pensions liberation scams are currently a pressing concern for trustees and the Pensions Regulator alike. As a result, scheme trustees are rightly concerned about facilitating transfers to the appropriate vehicles for their members and many are keen to carry out a thorough investigation before they allow a transfer to go ahead. However, this creates an uneasy tension between trustees' desire to protect members' interests and the need to meet the statutory deadlines, particularly in the event of unusual requests.

In this case, the Ombudsman held that a breach of the statutory deadline can be considered legitimate, particularly where the breach is caused by issues which are relevant to members' interests. The decision by no means renders statutory deadlines redundant, but instead, what it reminds us is that the best interests of all members, and trustees' duties as custodians of their scheme, are above all considered paramount.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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