The Pensions Ombudsman has recently issued three determinations on pension liberation (Jerrard, Stobie and Kenyon). The determinations clearly put the onus on scheme trustees and providers to make detailed enquiries of the receiving scheme where they have suspicions that a transfer might be being used for pension liberation. The starting point must always be to establish whether a right to transfer exists and, if it does, the transfer payment must be made. If it is established that no right exists (because the statutory requirements as outlined below or any alternative requirements under the scheme rules are not met) then the trustees or provider can and should refuse to make the transfer.
In all three cases, the member had requested a transfer from a personal pension scheme to an occupational pension scheme, but the transferring schemes had refused to make any payment because they suspected that the transfer would result in pension liberation. Their suspicions arose for a variety of reasons, including:
- the receiving scheme had only been recently registered;
- a pattern of recent transfer requests for connected schemes;
- research into the receiving scheme and the employer to which it was linked; and
- the employment status of the member.
While the detailed facts of each case are different, the conclusions the Ombudsman drew were broadly similar (and his findings are equally relevant to trustees of occupational pension schemes as to personal pension scheme providers). Even if trustees suspect that the receiving scheme is for pension liberation purposes, if the member has the right to a transfer, they cannot refuse to make the transfer. It is up to the trustees to be satisfied that a right to transfer does not exist, rather than for the member to prove that it does. Even if a transfer appears to be for pension liberation purposes, it does not necessarily mean that member does not have a right to take a transfer. If the trustees refuse to make a transfer, they should provide a full explanation to the member concerned as to why the right to transfer does not exist in the circumstances.
Therefore, the primary question should be whether or not a member has a right to a transfer, whether under statute or the scheme rules. This must be considered on a case by case basis, and in light of the Pension Schemes Act 1993 (PSA 1993), the Finance Act 2004 (FA 2004) and the scheme documentation for the transferring and receiving schemes. The Ombudsman considered:
- statutory transfer rights under PSA 1993, and the requirements for the receiving scheme to qualify as an "occupational pension scheme" in relation to this right, specifically:
- whether or not the scheme passed the "purpose" and "founder" tests set out in the High Court case of Pi Consulting. Very broadly, was the purpose of the scheme to provide benefits and was it established by a relevant employer? and
- whether the member was an "earner" entitled to transfer credits under PSA 1993. In all three cases, none of the members were earners, as they were not receiving remuneration in exchange for employment by the employer in relation to the receiving scheme;
- whether or not the transfer was an authorised payment under FA 2004 i.e. to a registered pension scheme or a qualifying recognised overseas pension scheme (QROPS), for the purposes of the scheme or to represent membership rights under it? In particular, the Ombudsman pointed out that if a significant proportion of the amount transferred would be going to the introducer of the receiving scheme or to others in fees, this would probably not be a "recognised transfer", as most of the amount would not be for the purposes of the scheme or to represent rights under it; and
- where trustees have discretion to make a transfer they have to properly consider and exercise it regardless of suspicions of pension liberation. In Stobie, the scheme had failed to do so and simply refused the transfer as they were suspicious of the receiving scheme.
The Ombudsman suggested in all three cases that transferring schemes should undertake detailed analysis in order to determine if a member has a right to a transfer. There is a clear need to obtain the rules and other documentation relating to the receiving scheme, which will mean a change in normal practice and potentially cause delay and run the risk of breaching statutory transfer deadlines. The Ombudsman also stated that inferences could be drawn from any failure to provide evidence, and any time delay in making the transfer was "understandable", to allow such investigation to proceed. Trustees or providers are also expected to question the member and to inform him or her about the related risks including directing them the Pension Regulator's "scorpion" guidance.
In all three cases, the Ombudsman found that there was no statutory right to transfer.
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