Liberation fraud: Where do trustees stand after the latest ombudsman decisions?

Natasha Browne examines the latest decisions on pension transfer requests


Natasha Browne asks whether trustees can find comfort in the latest PO decisions on pension transfer requests

Outgoing Pensions Ombudsman (PO) Tony King faced a tough task ruling on transfer requests blocked by providers who suspect members could fall victim to fraud. The industry has been eagerly awaiting decisions that would set a precedent that would help trustees and providers when handling suspicious transfer requests.

And in many ways King has risen to the challenge. Lawyers believe he has been consistent in saying administrators cannot block a member's request where there is a statutory right to transfer. And that right will only exist where it has been established that the receiving scheme is a properly established and registered arrangement.

Since the beginning of the year, the ombudsman has published half a dozen judgements on transfer requests. However, this is only a fraction of the total number of complaints related to this issue. Figures obtained from the PO by Professional Pensions show it is currently investigating about 170 cases on transfer requests.

Although the published rulings have shed light on the ombudsman's approach to these cases, they were all brought against providers. That limits the lessons for trustees. Linklaters associate Geoff Egerton says trustees are more likely to "agonise about the paternalistic elements of their role" than providers.

"You do your due diligence. And you do your work to make sure that you've flagged the warnings from The Pensions Regulator's (TPR) guidance, which says you should satisfy yourselves that this isn't a pensions liberation vehicle. But once you've done all that, if the right exists, there has to be a transfer," Egerton says.

DLA Piper partner Matthew Swynnerton adds: "You can see a consistency of approach from the ombudsman, which is helpful for trustees in understanding how they should behave in these cases.

"But it should also be acknowledged that the ombudsman operates in a slightly different environment to trustees. He is obliged to look at these cases strictly in accordance with the law and the legal right to transfer.

"Trustees might not feel they have to operate in exactly the same way. They might take more account of the different risks of the different approaches irrespective of statutory transfer rights."

Silverman Sherliker head of pensions Jennie Kreser (pictured) is not convinced the ombudsman's rulings have clarified the trustee position in these situations, however. She says: "This area continues to be a minefield for trustees who may be faced with a request for a transfer from members when they suspect that something is not ‘quite right'."

But she agrees that King had to stick firmly to the law when delivering his judgements. Kreser adds: "He cannot make any ruling that a court could not make. There is little likelihood that any extension in his powers would change this basic fact and he would be judicially reviewed were he to attempt to do so."

Penny Cogher, head of pensions at Charles Russell Speechlys, suspects the ombudsman received help from a barrister when ruling on these transfer request cases. She says: "I think from the pensions professional and the trustees' perspective, there's probably a bit of gnawing dissatisfaction with these ombudsman determinations. But I think the decisions are well-argued."

In a recent interview with PP, King said he thought some providers were blocking transfers out of "enlightened self-interest" rather than altruism. Cogher thinks some trustees and providers have overreacted to transfer value requests.

She says: "We've had one member ring up who was after four pension transfers into what we thought was a legitimate pension scheme. And he was told that it would take over six months - and probably closer to nine months - to get the transfer requests going.

"There was no reason for that level of delay so you can't help thinking that actually, there's been too much of a clamp down in some areas, which is unhealthy."

Industry code of practice

Allen & Overy counsel Helen Powell also says the PO's decisions were aligned with the thinking behind the Code of Good Practice on combating pension scams. This was published in March by the Pension Liberation Industry Group

Powell says: "It is the code, rather than specific determinations, which will guide trustees and providers in managing future transfer requests. Individual cases are inevitably fact-dependent; trustees and providers are in a much stronger position to be clear on standards for best practice by operating in line with the code."

CMS Cameron McKenna associate Mark Jenkins questions the effectiveness of the code, however.

He says: "There seems to be a tension between ‘scams' which are unlawful because they amount to a fraud or employ deception in order to deprive members of all/part of their pension savings, and those cases in which members who understand that what they are seeking to do might not be a financially prudent thing to do but approach the matter with their eyes open.

"The code does not appear to distinguish all that clearly between the two, making it difficult for trustees to know how they should approach cases that fall into the latter category.

"The code has the capacity to ‘muddy the waters' again for trustees by re-introducing a more subjective element, rather than relying on the black and white nature of the statutory transfer legislation."

King is set to exit the ombudsman on 22 May. He will be replaced by Eversheds consultant Anthony Arter. Cogher believes this could change the way the office handles complaints about transfer requests in future.

She says: "It will be interesting to see whether as a lawyer, and a pensions lawyer, Anthony Arter will be more on the black letter side of the law or whether he'll be interested in pushing the limits a little bit more.

"He may be a bit more confident in doing that with a legal background, I don't know. Or he may decide that for certainty, you've just got to keep to this black letter side of the law."

Decisions published since December 2014

Ombudsman ‘lacks confidence’ in trustees told to grant transfer request – 18 December 2014

King ordered the trustees of the Capita Oak Scheme to grant a cash equivalent transfer value to a member trying to leave the plan.

The ombudsman admitted he made the direction “without any great confidence” that it would be complied with immediately.

This was because he believed the suspicious scheme was “designed to avoid regulatory obligations that would otherwise limit scope for abuse”.

Ombudsman orders insurer to consider transfer request in scam test case – 9 January 2015

The PO directed Standard Life to reconsider granting a transfer request after he found that the insurer had failed to properly assess its “legal and regulatory obligations”.

The ruling formed part of three determinations on transfer requests to dubious schemes.

Complaints against Aviva and Zurich were dismissed because the members had no statutory right to transfer.

Ombudsman clears L&G, Scottish Widows over Capita Oak transfer – 22 April 2015

In two separate decisions, the ombudsman dismissed complaints against Legal and General, and Scottish Widows after they granted transfer requests worth over £50,000 into the Capita Oak Scheme.

The complainant argued the insurers failed to make the necessary checks on the receiving scheme before allowing his pension pots to be moved.

But King ruled that the providers had followed the right procedures for granting the requests, and pointed out the transfers were made before TPR published industry guidance on pension liberation.

“I think the comfort that can be drawn is probably limited to the fact that there are some consistent principles being used that when a member has a statutory transfer right, they can’t be deprived of that right. And again, that is consistent with what the ombudsman has said in other cases.” – Matthew Swynnerton

Ombudsman orders Prudential to grant transfer despite liberation fraud ‘insinuations’ – 23 April 2015

King told Prudential to provide a transfer request to a member wishing to move his funds into a newly-created pension scheme.

The ombudsman found that although the complainant had no statutory right to transfer, the contractual rules of the personal pension allowed for the movement of his pension pot.

He thought the insurer had failed to “satisfy” itself that the member did not have a right to transfer, and said he could not see why the “burden” lay with the member to prove he did have a right to move his funds.

“The ombudsman has made it clear that it is for the trustees/pension provider to satisfy themselves that a member does not have a right to transfer - the burden of proof does not lie with the member.” – Mark Jenkins

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