The latest decision from the Ombudsman will concentrate minds, finds Michael Klimes
- Trustees can expect a tougher line from Ombudsman on slow transfers
- There is a statutory six-month maximum but anything over a month could be deemed excessive
- Trustees cannot pass the buck to administrators
Pension transfers have been a bugbear in the industry for many years. They currently take a week on average according to the technology company Origo. Many believe they should take less time.
A July ruling by The Pensions Ombudsman against Optimum Capital Ltd for failing to process a transfer has been interpreted as a strong message to trustees. Ombudsman Anthony Arter said one month should have been plenty of time to disinvest and transfer the defined contribution funds, despite historic difficulties at the fund in question. The statutory time limit is actually six months.
The case also shows the argument that poor administration or changing administrator has delayed a transfer appears to be losing its force.
Sackers associate director Arshad Khan says the timing of the case gives it weight. "Post-April 2015 with there being a new era for pension flexibilities what members might expect now is probably different from what they had in the past," he says.
The intense media attention the reforms received has probably boosted expectations of rapid transfer times. "Comments like ‘you can access your money like a bank account' may have tricked members into thinking they can move their money from fund A into fund B in a very quick amount of time but it doesn't work that way," says Khan.
He believes Arter's decision has given trustees some parameters and the one-month reference point may "get into the psyche of trustees".
LCP partner Andy Cheseldine puts the Ombudsman's tougher stance on transfers alongside messages coming from The Pensions Regulator. "If you consider the new governance requirements for annual chair's statements to include notes on value for money and the accurate and timely recording of financial transactions, it isn't just the Ombudsman," he says.
Taylor Wessing partner Rosalind Connor says: "The judgment might be seen as harsh because, from the limited facts we have, it looks as if OCS were trying to do the right thing, but just failed to do them. However, once Mr Arter reached the conclusion that Tudor [a previous administrator and trustee of the scheme that was barred from practicing, and ultimately saw two directors jailed for fraud] had been removed, it would be hard not to find for the complainant as he did."
She also thinks the industry can expect a more assertive stance from the Ombudsman in the future on transfers and other issues. "We will see a lot more robust legal assessment from the new Ombudsman. Mr Arter was for many years a leading pensions lawyer and will have the confidence that other Ombudsmen may not have had to take legal positions on matters (such as, in this case, whether Tudor had been effectively removed)," she continues.
Spence director David Davison agrees with the lawyers' general interpretation of the ruling. He believes the Ombudsman has certainly set down a marker. "He rightly expects high standards, particularly when it comes to dealing with scheme members, and schemes need to step up to these levels. Trustees will now be aware of the judgement and that they won't get away with similar deficiencies," he says.
Trustees will need to ask themselves hard questions about what a sufficient timeframe is for member transfers. They will also have to consider whether they have adequate automation and if the administration in the scheme is satisfactory.
"Unfortunately scheme administration is rarely valued but efficiency around issues like this will need to be a key determinant in selection of an administrator, and clear processes will need to be established to meet reasonable timescales," Davison says.
Furthermore the job of a trustee is increasingly onerous he thinks. "Issues such as this are likely to make lay trustees even more difficult to find and the move towards professional trustees all the more likely."
According to Sacker's Khan there are three developments stemming from the case that the industry should look out for. The first is that more members could bring complaints to the Ombudsman over what they consider to be slow transfer times.
Secondly, if trustees end up in front of the Ombudsman over a transfer time which has taken longer than month, they maybe more likely to settle with the member, rather than defending their actions. Finally, there is the question of how the Ombudsman will rule when similar cases come to him in the future?
The answer will depend on the facts of each individual case. But LCP's Chesldine says trustees should not be too anxious: the Ombudsman is unlikely to take an unreasonable approach.
He says: "If there is good reason for delay such as suspicion of liberation fraud, concern over understanding the value of historic promises like protected lump sums, or there being a defined benefit element, these can be taken into account. But it's also clear that delaying just because you believe there is a legal limit isn't going to be an acceptable defence."
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