Although HMRC's new processes should be of help to scheme administrators, a recent High Court case highlights why the definition of "occupational pension scheme" in section 1 of the Pension Schemes Act 1993 (PSA) remains a stumbling block for scheme administrators trying to decide whether a proposed transfer to another scheme will be an authorised payment.

In this case Pi Consulting (Trustee Services) Ltd and Dalriada Trustees Ltd, between them the independent trustees of nine suspected pension liberation schemes, sought the court's decision as to whether the schemes were occupational pension schemes. If they were, then the powers which the Pensions Regulator had exercised, to suspend the trustees and to appoint an independent trustee, had been validly exercised.

Unfortunately for scheme administrators, the judgment affords no help in determining whether the structure of a particular arrangement is a pension liberation scheme, since it was agreed that judgment should be given on the basis that the schemes were not shams. There is therefore no detail on how the schemes were operated.

The court held that the schemes were occupational pension schemes, as they satisfied the two tests in section 1 PSA, the purpose test and the founder test.

The purpose test

The scheme documentation satisfied the test of being for the purpose of providing benefits to, or in respect of, people with service in employments of a particular description (and also other people). This is a question of objective fact; it is irrelevant whether the documentation uses the label "occupational" or "personal" or (as here) both. It is also irrelevant what the parties believed an occupational scheme to be or what their alleged motives or intentions were.

The founder test

The court held that the founder of each scheme employed a person of the relevant description at the time when the scheme was established. Under the wide definition of employment used in section 1 PSA, which includes any "office", the directors of the founders were "employed". Section 1 identifies the person who pays an office-holder as his employer. Here there was no evidence as to whether the directors were paid, but the court found it "relatively straightforward to hold that if the company director is for the purposes of this legislation to be regarded as 'employed' then it is the company who employs him".

This is probably the main difficulty facing scheme administrators who receive a request from a member to make a transfer to a scheme which they suspect may be a pension liberation scheme: the receiving scheme may show no signs of a "true" employment relationship but has an individual who is an office-holder and therefore the scheme satisfies the occupational pension scheme test. Therefore, whilst HMRC's new processes should help, they will not solve the problem, at least while the PSA definitions remain in their current form.

Click here for the judgment in HK Danmark v Experian A/S.

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