The High Court has overturned a decision of the Pension Ombudsman which had allowed a personal pension scheme to decline a member's transfer request where there were concerns about the possibility of a pensions scam. The court disagreed with the PO's interpretation of the relevant legislation.

Pension liberation

The term "pension liberation" has been coined by the pensions industry to cover any form of unauthorised use of pension monies. The so-called liberators have been extremely creative with scams ranging from early access to pension monies before age 55, or the promise of unrealistically high investment returns.

The scams which at first, can look and feel like occupational pensions schemes, are quite often registered with HMRC. However, they often breach HMRC rules, are backed by poor or non-existent documentation are quite often promoted by dubious operators. Ultimately, it is the member who suffers adverse tax consequences which may not have been properly explained at the outset.


Mrs Hughes was a member of the Royal London Personal Pension Scheme. The rules of the Royal London Scheme gave the administrator an "absolute" discretion to transfer a member's benefits to another pension scheme.

In July 2014 Mrs Hughes applied to have her Royal London accrued benefits transferred to a SSAS in order to acquire transfer credits.

Mrs Hughes was an employee of the SSAS employer but she had no earnings in relation to the SSAS employer.

Royal London refused to make the transfer on two grounds:

  1. It was not satisfied the transfer would be used for the purpose of providing appropriate pension benefits under a registered pension scheme; and
  2. It queried whether Mrs Hughes had a statutory right to transfer as it did not think that the SSAS could be correctly categorised as an occupational pension scheme.

Ombudsman's determination

Discussing Mrs Hughes' complaint against Royal London's decision not to grant a transfer, the PO found that the member did not have a statutory right to a transfer value. This was based on a quirk of the underlying legislation – in order to secure "transfer credits", the member needs to be an "earner" in relation to the receiving scheme. As we know, Mrs Hughes had no earnings in relation to the SSAS employer.

Having decided that Mrs Hughes did not have a statutory right to a transfer value, the PO then went on to state that Royal London had correctly raised legitimate concerns about the transfer and the facts surrounding it (i.e. not exercising its absolute discretion).

Appeal to the High Court

Mrs Hughes appealed against the PO's determination. She maintained that the PO had incorrectly construed the definition of "transfer credits" - that she was an "earner" within that definition even though her earnings did not come from an employer in relation to the SSAS. The High Court allowed the appeal against the PO's determination that Mrs Hughes was an earner by reason of her earnings from another source and was entitled to require the Royal London to transfer the cash equivalent of her accrued rights to the SSAS.

The Court having found in Mrs Hughes' favour on the "earnings" question did not consider it necessary to examine whether Royal London had acted improperly in not exercising its discretion to transfer her accrued rights.

Wedlake Bell comment

In response to the High Court's judgment, the PO issued a statement noting that it had around 200 cases affected by this ruling. Clarity on the fact that members do not need to be in receipt of earnings from an employer sponsoring the occupational scheme to which they wish to transfer was welcomed.

The decision does however still leave trustees and administrators in a potentially difficult position with regard to transfer requests from members. The decision seems to suggest that beyond verification of earnings and the provision of risk warnings such transfer request cannot be refused. Where does this leave trustees and the fiduciary duties they owe to members?

Some savers will not be equipped to making such decisions for themselves. This means that bad decisions will undoubtedly follow.

Trustees and administrators must comply with the law – decisions from the High Court are binding. One therefore comes back to making sure member communications on pension liberation are clear and transfer packs are well structured in order to allow those individual savers contemplating a transfer the ability to make well-informed decisions which are not bad decisions. Unfortunately for trustees and administrators the market seems to be moving towards equipping individuals with this information rather than playing an active role in preventing such decisions in suspicious circumstances.

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.