SIPP and SSAS Update



Berkeley Burke SIPP case

In a landmark judgment handed down on 30 October 2018, the High Court upheld a Financial Ombudsman decision that SIPP administrator Berkeley Burke should have undertaken significantly more due diligence before accepting an investment into its SIPP, and that this was the case despite the scheme member having signed numerous disclaimers.  For more detail, see our e-bulletin.  Berkeley Burke is appealing the judgment.  The appeal hearing is scheduled for 15 October 2019.

Upper Tribunal rejects member's appeal in decision in Clark v Commissioners for HMRC

The Upper Tribunal has rejected the member's appeal in Clark v Commissioners for HMRC in which HMRC had levied an unauthorised payments charge and unauthorised payments surcharge.  The member's fund had been transferred from a SIPP to what was purportedly a single member pension scheme, the "Second Scheme".  Funds were subsequently transferred from the Second Scheme to a company referred to in the judgment as "CIM".  HMRC's original case had been that the transfer from the Second Scheme to CIM was an unauthorised payment.  However, during the course of argument before the First-tier Tribunal, the Tribunal reached the conclusion that the Second Scheme was not as a matter of law a pension scheme at all, as the member's interest under the Second Scheme documentation was void for uncertainty.  As the Second Scheme was not a pension scheme, it followed that an unauthorised payment had been made at the point when funds were transferred from the member's SIPP to the Second Scheme.  

The member's appeal was based on a technical legal argument, namely that there had been no "payment" because the fact that the member's interest under the Second Scheme documentation was void for uncertainty meant that, as a matter of law, the original SIPP was still entitled to the funds.  However, the Upper Tribunal rejected this argument.  It also rejected an argument which challenged the assessment by reference to the fact that HMRC had originally considered that the unauthorised payment occurred at the point when funds were transferred from the Second Scheme rather than on the transfer from the SIPP to the Second Scheme.

Our thoughts

This case suggests that if HMRC imposes tax charges in respect of unauthorised payments, the tax tribunals will be reluctant to overturn assessments on the basis of technical legal arguments where the substance of the matter is that funds have been paid out of a registered pension scheme to enable payments not authorised by the pensions tax regime.

Tribunal orders HMRC to re-instate fixed protection where member mistaken as to effect of pension contributions

In the case of Hymanson v HMRC, the First-Tier Tribunal has ordered HMRC to re-instate a member's fixed protection against the lifetime allowance where the member had not stopped contributions paid under an existing standing order due to a mistaken belief that existing contribution arrangements could continue without resulting in loss of fixed protection.

The Tribunal applied the principle laid down by the Supreme Court in Pitt v Holt that a "voluntary disposition" (such as contributions to a pension scheme) may be set aside by the court on grounds of mistake if the court considers that the nature and seriousness of the mistake make it appropriate to set aside the transaction in question.

Our thoughts

The Tribunal in this case found that the member did not simply continue to make contributions due to ignorance of the law.  He allowed contributions to continue due to a conscious belief that existing standing order payments could be made without the loss of fixed protection.  The Tribunal appears to have attached considerable importance to this point.  Nevertheless, this appears to be a particularly "member friendly" judgment.

Advice on merits of establishing SIPP may need to include advice on merits of underlying investments

In the case of Alistair Rae Burns v Financial Conduct Authority, the Upper Tribunal of the Tax and Chancery Chamber has held that where a firm advises on the merits of establishing a particular SIPP in circumstances where it knows that the customer’s intention is that the SIPP will invest in particular assets which are not themselves regulated investments for the purposes of the FSMA regime, then advice on the merits of the underlying investments to be held within the SIPP is a component of the advice on the merits of establishing the SIPP and is therefore a regulated activity.  The case arose out of an unsuccessful legal challenge by Mr Burns to the FCA's decision to prohibit him from carrying out a senior manager or "significant influence" function in relation to a regulated activity for the purposes of the FSMA regime.  

Mr Burns had been involved in two businesses each operated by a separate company.  One was an FCA-regulated IFA business and the other was an unregulated business which promoted unregulated investments such as overseas property.  Both companies operated under the brand name "TailorMade".  When the unregulated company found customers interested in the investments it was promoting, it would refer them to the IFA company to advise on a transfer of the customer's existing pension funds to a SIPP.  The SIPP funds would then be used to fund the investment purchase.  

The official position of the IFA company was that it was only advising on the suitability of a SIPP once the customer had decided that he/she wished to invest in unregulated investments and that it was not advising on the merits of the underlying investments.  However, there was evidence that it had advised customers to transfer to a SIPP when it knew (a) that the only reason for the SIPP transfer was to enable investment in an unregulated investment; and (b) that the customer was a risk averse investor.  This did not comply with the FCA's industry alert published on 18 January 2013, saying that where a financial adviser recommends a SIPP knowing that the customer will transfer from a current pension arrangement to release funds to invest through a SIPP, then the suitability of the underlying investment forms part of the advice given to the customer. If the underlying investment is not suitable for the customer, then the overall advice should be that the transfer is not suitable.  There was also evidence that it had not been clear to customers that they were dealing with two separate companies, only one of which was regulated.  

Following the failure of many of the investments concerned, the FSCS had paid out over £55 million in compensation to the IFA company's customers, many of whom still suffered substantial losses due to the £50,000 cap on FSCS compensation.

Another point coming out of the judgment is that if a person accepts a "significant influence function" in a regulated business, that person is required to take reasonable steps to ensure that the business for which he is responsible complies with relevant regulatory standards.  Whilst one person may be given prime responsibility for a particular aspect of compliance, persons in significant influence functions are expected to maintain oversight of compliance and cannot absolve themselves of that responsibility by delegating the responsibility for compliance to someone else.

Our thoughts

The outcome of this case shows that the FCA and the courts will expect senior management at regulated businesses to maintain sufficient oversight to satisfy themselves that the business as a whole is being run in a way that complies with the principles in the FCA handbook, and will not allow senior managers to evade that responsibility by limiting their own responsibility to an isolated aspect of the business.

Court of Appeal decision on litigation privilege

On 5 September 2018, the Court of Appeal handed down its judgment in the case of The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd, an important judgment on the issue of when documents are protected from having to be disclosed in court proceedings under the rules on "litigation privilege".  For more detail, see our e-bulletin.


Draft regulations on repayment of overseas transfer charge

The Government has made regulations setting out the conditions and procedure for making a claim for repayment of the overseas transfer charge.  The charge is levied in some circumstances on a transfer to a qualifying recognised overseas pension scheme (QROPS).  It was introduced in 2017 with the aim of preventing abuse of the law regarding overseas pension transfers.  The legislation provides for repayment of the charge if, within 5 tax years of the transfer, the circumstances have changed so that a tax charge would no longer apply, hence the need for the regulations which will come into force on 25 April 2019.


FCA announces increase in Financial Ombudsman Service award limit

On 8 March 2019, the FCA announced an increase in the maximum limit on compensation which the Financial Ombudsman Service (FOS) can award.  With effect from 1 April 2019, the £150,000 limit increased to £350,000 for complaints about actions on or after that date.  For complaints about actions before that date that are referred to FOS after that date, the limit has increased to £160,000.

FCA Policy Statement on new rules to improve consumer engagement with retirement income decisions

The FCA has published a Policy Statement outlining new rules and guidance on its first package of remedies from its Retirement Outcomes Review which looked at how the retirement income market was evolving since the pension freedoms were introduced in April 2015.  

In relation to "wake-up packs", the FCA will:

  • introduce additional trigger points for the wake-up pack to include a pack at age 50 and then every 5 years until consumers have fully crystallised their pension pot;
  • introduce a single page summary document into the wake up pack;
  • introduce additional risk warnings alongside wake-up packs;
  • prevent firms from including marketing material alongside the wake-up pack; and
  • strengthen the messaging in the reminder about the wake-up pack to encourage increased take-up of pensions guidance.

In relation to other information requirements, the FCA will:

  • require firms to ask additional questions to establish whether consumers wishing to buy an annuity would be eligible for an enhanced annuity.  Where relevant, the enhanced annuity information will have to be used to generate a market-leading annuity quote;
  • require firms to use different templates when providing income-driven annuity quotes, ie quotes where the consumer wants to know the cost of purchasing an annuity to provide a specified level of income;
  • make changes to the way in which information in a  Key Features Illustration (KFI) is presented to customers entering drawdown or taking an income for the first time (including "UFPLS" payments), in particular requiring it to include certain key information in a one page summary;
  • require additional information to be provided to clients holding funds in a drawdown contract.  The proposals are in particular intended to address the fact that a consumer will not necessarily draw benefits immediately on moving funds into a drawdown contract 

The changes in relation to wake-up packs and annuity quotes will come into force on 1 November 2019.  The changes in relation to the KFI and drawdown information will come into force on 6 April 2020.

FCA consults on "investment pathways" for non-advised drawdown customers

In relation to its second proposed package of remedies coming out of its Retirement Outcomes Review the FCA has consulted on changes to its rules and guidance in relation to non-advised customers who go into drawdown.  The FCA is particularly concerned about the funds of non-advised drawdown customers being defaulted into cash in circumstances where holding the funds in cash is unlikely to meet the customer's long-term objective (eg where the customer plans to hold the funds long-term and would be likely to achieve substantially greater returns by investing differently).  It plans to require larger drawdown providers to offer their customers "investment pathways" for at least two of the following four objectives and refer consumers to another provider's pathway solutions for any of the four objectives that they don't cover:

  • the consumer does not plan to touch his/her money in the next 5 years;
  • the consumer plans to use the funds to purchase an annuity within the next 5 years;
  • the consumer plans to take his/her money as a long-term income within the next 5 years;
  • the consumer plans to take out all his/her money within the next 5 years.

The FCA plans to impose less onerous requirements on "small providers", which it classifies as those with fewer than 500 non-advised customers a year entering drawdown.  Small providers would still have to present non-advised consumers with the objectives, but could refer them to another provider's pathway solutions or to the Single Financial Guidance Body's drawdown comparator tool (when operational).

The consultation also contains proposals to ensure that consumers only hold their funds as cash if they make an active decision to do so (eg by prohibiting providers from pre-populating forms with a cash option) and to require providers to tell consumers in pounds and pence what charges they have paid each year.

"Dear CEO" letter on managing the risks of DB to DC transfers

On 22 March 2019, the FCA issued a "Dear CEO" letter to pension providers on managing the risks of defined benefit to defined contribution transfers.  The FCA's key expectations of pension providers are:

  • processes for regularly reviewing DC products should be able to show how the provider has taken into account the needs of customers transferring from DB schemes, particularly if the products were developed before the pension freedoms were introduced in April 2015;
  • messages provided to adviser firms should be balanced and accurate.  The FCA expects providers to have appropriate measures in place to ensure products are being recommended "responsibly and appropriately" and that providers do not encourage adviser firms to make inappropriate recommendations;
  • if during a retrospective review the provider identifies a case where adviser permissions have been changed or removed, the FCA expects the provider to check the firm still has the correct permissions and act accordingly;
  • providers should ensure management information (MI) is sufficiently detailed to enable management to understand and manage the risks from DB pension transfers.  MI should identify "negative trends" such as a high volume of transfers from a single scheme over a short period or customers transferring out of new DC arrangements soon after transferring from DB schemes.  Providers should assess negative trends and assess whether they need to notify the FCA;
  • staff remuneration structures should drive outcomes which are in consumers' best interests;
  • providers should consider completing "second and third line reviews" of DB activity since pension freedoms were introduced;
  • documents and tools given to advisers should be kept up-to-date.

We understand that AMPS (the Association of Member-directed Pension Schemes) is trying to arrange a meeting with the FCA to understand the ramifications of the letter more clearly and establish exactly what the FCA expects of product providers.  AMPS says it has become aware that a number of firms have not received the Dear CEO letter and is asking that those firms which have received the letter confirm that to AMPS in order to aid discussions with the FCA.

FCA consults on investment platforms switching

The FCA is consulting on changes to the regulation of platform service provider firms and others offering comparable services.  The FCA aims to make it easier for consumers to move their assets to a new platform. Its proposals aim to avoid unnecessary liquidation of investments, for example by requiring platforms to offer consumers the opportunity to make in specie transfers where the investments are common to both platforms.  The FCA thinks a ban on platform exit fees is likely to be appropriate and the consultation seeks views on the potential nature and scope of such a ban.

The consultation closes on 14 June 2019.

FCA to review non-standard SIPP investments 

In a parliamentary Work and Pensions select committee hearing on 6 February 2019, the FCA's director of life insurance and financial advice said that looking at high risk investments held within SIPPs to re-visit whether advisers are taking an appropriate approach is a piece of work which the FCA has planned for next year.  Questioned on the FCA's supervision of the SIPP sector, the FCA's chief executive referred to the SIPP market having evolved into two parts, one being the "high net worth" sector and the other being people using it for much smaller savings and relying on it much more as a source of income.

FCA Policy Statement on new Directory raises possibility of no DB transfers for a year

On 8 March 2019, the FCA published a Policy Statement on its new Directory, a new public register with details of individuals carrying out specific roles in UK financial services.  The need for the Directory has arisen due to changes in the information held on the Financial Services Register (FS Register).

The FS Register provides a public record of the firms regulated by the FCA and the individuals approved by the FCA and Prudential Regulation Authority (PRA).  This currently includes information on a firm's senior management, its control staff and customer-facing roles.  The FS Register will continue following the extension of the Senior Managers and Certification Regime but will contain fewer individuals.  This is because only individuals for specified Senior Manager roles at FSMA firms will then be approved and so appear on the FS Register.  Customer functions including individuals who provide financial advice or help with pension transfers now need to be assessed as fit and proper by firms rather than being approved by the FCA.  The FCA is therefore introducing the Directory, a new public register which will make information public on additional individuals carrying out specific roles in UK financial services, as well as containing information on Senior Managers.

The Policy Statement says that the Directory user interface will go live shortly after the information on Directory persons has been uploaded in March 2020 for banking firms and insurers, and December 2020 for all other firms.  This raises the possibility of a gap of approximately one year between advisers (who are not "Senior Managers") being removed from the FS Register in December 2019 and being searchable on the new Directory from December 2020.  This would make it impossible for trustees of defined benefit schemes to make the checks which they are required by law to make when they are required to check that the member has received "appropriate independent advice".  This requirement generally applies if the member is transferring more than £30,000 from a DB to a DC pension arrangement.  It has been reported in the pensions press that the Pensions Regulator has said it is aware of the issue and will update its guidance later this year.

FCA modifies rules on statutory money purchase illustrations

On 31 October 2018, the FCA announced a "modification by consent" to its COBS rules which require projections within a Key Features Illustration (KFI) to be presented and calculated in a certain way (illustrating lower, intermediate and higher rates of return using FCA assumptions).  The modification is intended to allow a statutory money purchase illustration (SMPI) to illustrate the potential effects of increasing pension contributions without the illustration having to comply with the FCA's projection rules.  The modification is valid until 30 September 2020.  Firms wishing to take advantage of the modification by consent need to write to the FCA's Central Waivers Team, who will then write back to confirm the modification.

Feedback and final rules and guidance from FCA consultation on improving the quality of pension transfer advice

On 4 October 2018, the FCA published new rules and guidance on improving the quality of pension transfer advice.  The new rules and guidance include:

  • raising qualification levels for pension transfer specialists (PTSs) to require them to obtain the same qualification as an investment adviser alongside the existing PTS qualification
  • guidance to clarify the FCA's expectations that advisers should be exploring clients’ attitudes to the general risks associated with a transfer, in addition to their attitude to investment risks
  • guidance to illustrate how firms can carry out an appropriate ‘triage’ service (an initial conversation with potential customers), without stepping across the advice boundary, by providing generic, balanced information on the merits of pension transfers
  • a requirement for firms to provide a suitability report regardless of the outcome of advice
  • updating the assumptions to be made when valuing increases applied to DB scheme benefits, where there are upper and lower limits applying to inflationary pension increases.

The changes are effective from a range of dates from 1 October 2018 to 1 October 2010.

In its consultation on the changes, the FCA had sought views on banning "contingent charging" which is when a fee for advice is paid only when the transfer goes ahead.  On this issue, the FCA concluded that it needs to carry out further analysis before reaching a decision.

FCA takes court action against alleged unauthorised adviser in Elysian Fuels investment scheme

In the case of The Financial Conduct Authority v Vrajlal Sodha and MNS Financial Consultancy Limited, the FCA is bringing court proceedings against an individual who it alleges advised customers to invest in shares in Elysian Fuels in breach of the general prohibition on advising on pension investments by way of business without FCA authorisation.  The FCA's claim says that customers have lost over £1 million in total after investing in the Elysian Fuels scheme following the advice of the defendants, but that the defendants made profits in excess of £30,000 in respect of advice and arrangements in relation to Elysian Fuels.  The FCA is asking the court to make an order requiring the defendants to compensate affected customers.

FCA consults on changes to allow greater range of illiquid investments via unit-linked funds

The FCA has consulted on proposed amendments to its "permitted links" rules which specify the types of underlying investments which insurers can include within unit-linked policies when it is an individual who bears the investment risk (eg where investments are held by a money purchase pension scheme).  The aim of the proposed changes is to allow investment in a wider range of long-term assets, particularly where the investment priority is to maximise long-term returns rather than have access to short-term liquidity.


Pensions dashboard consultation

On 4 April 2019, the Government published a response to its consultation on enabling delivery of a "pensions dashboard", ie the facility for individuals to view information about all their pension benefits in a single place online.  The recently created Single Financial Guidance Body (now re-named the "Money and Pensions Service") will lead delivery of the initial phase of the project, bringing together a delivery group made up of industry stakeholders, consumer groups, regulators and government.

It is proposed that pension schemes will generally be compelled to provide the necessary information for inclusion in the pensions dashboard.  In the original consultation, the Government had proposed that participation would be voluntary for small self-administered schemes (SSASs) and executive pension schemes.  However, consultation responses on this point were mixed.  The Government believes there is a case for exempting some "micro schemes", but will draft the primary legislation on the assumption that all schemes are required to participate in dashboards and then consider, with input from the delivery group, the case for any exemptions.  

The Government proposes a phased approach to compelling schemes to provide data for dashboards, suggesting that master trusts (and perhaps some other large DC schemes) might be ready to provide data on a voluntary basis from 2019/20 and that large DC schemes will be the first to be obliged to provide data.  The Government expects the majority of schemes to be providing data via dashboards within a 3 to 4 year timeframe.

The Government intends that the initial dashboard costs will be funded by the Financial Services Levy and General Levy on pension schemes in addition to some central government funding.

The next stage in implementing dashboards is for the Single Financial Guidance Body to establish the delivery group.  The Government anticipates that the delivery group will be fully operational by the end of summer 2019.


Change of name for Manage and Register Pension Schemes service

In its Pension schemes newsletter 106 published on 30 January 2019, HMRC announced that the name of its "Manage and Register Pension Schemes" service has been changed to "Managing Pension Schemes" because HMRC think that more accurately reflects what the service is used for.

Relief at source newsletter

On 13 September 2018, HMRC published a "Relief at source pension schemes newsletter".  Among other things, the newsletter reminded scheme administrators that in January 2019, HMRC's notification of residency status would include a "C" on the notification of residency status for members who live in Wales.  This development relates to the fact that from tax year 2019/20, the Welsh Government will have the power to set income tax rates for individuals resident in Wales.  For tax year 2019/20 the Welsh Government has decided to set the rates at a level which means the rates paid by Welsh taxpayers will continue to be the same as those for taxpayers in England and Northern Ireland.

The newsletter also reminds administrators that they should not claim relief at source for a member unless the member either has a NI number or has provided a statement giving reasons why he or she does not have one.

Lifetime allowance 2019/20

For tax year 2019/20 the lifetime allowance has been increased in line with CPI inflation to £1,055,000.

Pensions Ombudsman

New guidance on awards for non-financial injustice

In September 2018 the Pensions Ombudsman published revised guidance on the awards which the Ombudsman will make in respect of non-financial injustice. Where the Ombudsman takes the view that non-financial injustice is more than nominal and therefore merits an award, he will normally categorise the injustice as either "significant", "serious" or "severe", which will typically result in an award of £500, £1000 or £2000 respectively, though the Ombudsman may award more than £2000 for non-financial injustice in exceptional circumstances. For each category, the guidance lists factors that make it likely that the case will be placed in that category. For example, if a member is prevented from making an informed life decision at a critical time (eg whether to retire early) that is an indication that the case will be categorised as "severe".

Consultation on changes to Pensions Ombudsman powers

The Government has consulted on making changes to the Pensions Ombudsman's powers to allow for the early resolution of disputes following the transfer of TPAS's dispute resolution function to the Pensions Ombudsman's office. In particular, the Government has sought views on what the legal status should be of an agreement reached following an early dispute resolution process, and whether the Ombudsman should have the power to make legally binding directions in connection with such a process. The consultation also sought views on whether employers should be permitted to bring pensions complaints to the Ombudsman on their own behalf.

Ombudsman upholds complaint that disproportionate transfer due diligence caused unnecessary delay

In the case of Mr S (PO-19383) the Deputy Pensions Ombudsman (DPO) has upheld a member's complaint that a transferring scheme's due diligence for a transfer to the Universities Superannuation Scheme (the USS) was disproportionate and caused unnecessary delay. The USS is one of the largest occupational pension schemes in the UK by assets under management, and the member who had made the transfer request could demonstrate that he was already a USS member, so there was no real doubt that the transfer was legitimate. Nevertheless, the transferring scheme administrator stuck rigidly to its due diligence procedure. This included asking for the USS's deeds, including deeds of participation by employers, as well as a "live signature" on a certified copy of a scheme bank account. Completion of the due diligence process delayed the transfer value by several months.

The DPO said that, having confirmed the identity of the scheme through its registration with HMRC, it was difficult to see any reason why the transferring scheme's administrators would have continued to doubt the legitimacy of the receiving scheme. The DPO made clear that she did not consider that verifying receiving schemes via their registration alone would be sufficient in all cases. However, she found that it would have been sufficient in the particular case in question. She awarded the member an amount in respect of investment returns lost as a result of unnecessary delay plus £500 for distress and inconvenience.

Our thoughts

In the determination reported below, the Ombudsman upheld a complaint against Northumbria Police Authority for failing to carry out adequate due diligence before making a transfer. In that case the Ombudsman specifically criticised the Authority for not acquiring a copy of the receiving scheme's trust deed and rules to check that it was an occupational pension scheme and able to accept the transfer. This illustrates the need for due diligence procedures to have a degree of flexibility that takes account of the nature of the proposed receiving scheme. It is clear that the Ombudsman will expect schemes to make more thorough checks if asked to make a transfer to an unknown scheme, but may be critical of a scheme that insists on making those same checks for a transfer request to a large well known scheme such as the USS where the scheme's legitimacy is not in doubt.

Ombudsman upholds complaint against scheme for allowing transfer out without adequate checks

In the case of Mr N (PO-12763) the Ombudsman upheld a complaint against Northumbria Police Authority for not undertaking adequate checks before processing a member's request to transfer out of the Police Pension Scheme. The member said that it was only following the transfer that he realised with concern that he had signed up to a high risk investment as a "sophisticated investor". The Ombudsman ordered the Authority to reinstate the member's accrued benefits in the Police Pension Scheme or provide equivalent benefits, though on the basis that the Authority will be entitled to recover from the member any amount which the trustee of the receiving scheme recovers in respect of the member's benefit.

The Authority had sought to rely on legislation which provides that trustees of the transferring scheme are discharged from any obligation to provide benefits to which the transfer value related where "the trustees or managers of the scheme have done what is needed to carry out what the member requires" following the exercise by the member of his statutory right to a transfer value. However, the Ombudsman held that "what is needed" includes appropriate review of the transfer application, taking into account the law and regulatory guidance, and that "what the member requires" could only be established by ensuring that the appropriate due diligence was carried out, and any warnings or concerns identified and brought to the attention of the member. Applying these tests, the Ombudsman held that the Authority was not entitled to rely on the statutory discharge. In particular, the Ombudsman criticised the Authority for:

  • not sending the member a copy of the Pensions Regulator's "scorpion" leaflet warning about the dangers of pensions liberation. It was not sufficient that the Authority had simply made the leaflet available to all members via a link on its newsfeed;
  • not querying with the member the fact that the receiving scheme's sponsoring employer was a dormant company registered at an address far from that of the scheme member. This was particularly significant given that the Authority knew that the member was still employed as a policeman in Northumberland, and that there were only limited circumstances in which a serving police officer would be allowed to have a second employment;
  • not acquiring a copy of the receiving scheme's trust deed and rules to check that it was indeed an occupational pension scheme able to accept the transfer value. The Ombudsman said that "where there are areas for concern" he would expect these to be obtained.

Our thoughts

Transfer values can be a minefield for scheme trustees. This case illustrates that the Ombudsman may hold the transferring scheme liable if a member transfers to an unsuitable scheme and the Ombudsman considers that the transferring scheme trustees should have made more checks. However, if trustees unnecessarily delay a transfer, they risk being held liable if the member misses out on investment returns as a result.

Trustees should ensure that they have robust processes in place for transfers, both in terms of identifying "red flags" that a receiving scheme may be a pensions liberation vehicle, and in terms of ensuring legitimate transfers are dealt with promptly. Ombudsman determinations show that he attaches considerable importance to sending members a copy of the Pensions Regulator's "scorpion" leaflet when transfer information is requested, though he does not regard that alone as sufficient for the transferring trustees to satisfy their duties.

Since the transfer in this case, legislation has introduced a requirement for trustees to satisfy themselves that the member has received "appropriate independent advice" if the member is transferring from a defined benefit to a money purchase arrangement and the value of the benefits exceeds £30,000.

Complaint upheld against administrator for wrongly implementing ambiguous pension sharing order

In the case of Mr A (PO-19073), the Ombudsman has upheld a complaint against scheme administrators for incorrectly implementing an ambiguous pension sharing order made in respect of the member's divorce. The member had benefits in both the defined benefit and money purchase section of the scheme.

The scheme administrator was asked to confirm that it would be able to implement a draft court order which provided, “There shall be a pension sharing order of the husband’s pension with Rettig no. H93849 as to 54% in favour of the wife”. It confirmed that it would be able to do so, and the order was duly made. However, the reference number in the order related only to the money purchase section of the scheme. The administrator subsequently queried with the member's wife's lawyer whether the pension sharing order applied to the member's benefits in both sections. After the lawyer confirmed that it did, the administrator made a transfer equal to 54% of the member's benefits into the wife's pension scheme. The member subsequently complained that the order was only intended to cover his money purchase benefits. The matter ended up going back to court. Having retrieved the original file, the judge concluded that the actual intention had been to make an order in respect of the member's benefits in the defined benefit section only and made an order accordingly. The member's wife refused to repay any funds and the member complained to the Pensions Ombudsman.

The Ombudsman upheld the complaint against the scheme administrator, which had realised that the order was unclear, but had relied on the member's wife's lawyer rather than taking advice from its own lawyer or referring the matter back to the scheme trustees as it should have done. The Ombudsman ordered the scheme administrator to liaise with such other parties as were appropriate to reinstate the member's money purchase pension fund in the scheme in full, adjusted to reflect the investment return that would have arisen in the scheme had no transfer been made in respect of the money purchase section. He also ordered the administrator to reimburse the member for the legal expenses he had incurred in going back to court, and also to pay the member £500 for his distress and inconvenience.

Our thoughts

This case illustrates that if trustees/administrators are presented with a draft court order and given the opportunity to comment, it is well worth taking the time to check that the order is unambiguous and in a form that can be implemented. The case also illustrates the danger of relying on the word of a lawyer who has been appointed to advise someone else.

Complaint upheld where trustees made insufficient enquiries outside expression of wish form

In the case of Mrs G (PO-17602), the Ombudsman has upheld a complaint where the trustees relied on an expression of wish form alone without making further enquiries to decide on the distribution of a lump sum death benefit held on discretionary trusts. The member had completed an expression of wish form two years before his death, in which he nominated Mrs E, describing her as his "sister". On the basis of the form alone, the trustees paid the lump sum to Mrs E. However, following a complaint by another family member, it emerged that Mrs E was not a blood relative of the deceased member (though they did share a half-sibling) and there were allegations that the member had been pressurised into nominating Mrs E after he fell behind with rent owed to her and she threatened legal action. The Ombudsman ordered the trustees to re-consider their decision and to pay the complainant £500 for distress and inconvenience.

Our thoughts

This case illustrates that even in apparently straightforward cases, trustees should make their own enquiries before deciding how to distribute a death benefit held on discretionary trusts, and should not make a decision based on the expression of wish form alone.

Disclaimer could not protect scheme from error of 30% in quoted figure

In the case of Mrs S (PO-15486) the Pensions Ombudsman has upheld a complaint where an incorrect transfer value was provided to a member's wife in connection with divorce proceedings. The original value quoted was almost £990,000 so the pension sharing arrangements formed a significant element of the overall divorce settlement. However, in the course of implementing the pension sharing order, the scheme administrator realised that the transfer value had been overstated by approximately 30%. As a result, the pension sharing order was re-visited and Mrs S incurred additional legal and financial advice costs in relation to the revised order. The Ombudsman ordered the scheme's trustees to compensate Mrs S for these additional costs (£5845 in total) plus £1500 in respect of the distress and inconvenience she had suffered.

The original transfer value had been accompanied by a disclaimer stating that it was for information only and that on receipt of the pension sharing order, it would be re-calculated and would differ from the figure initially quoted. However, the Ombudsman held that the figures should nevertheless have been based on correct data and that the disclaimer did not provide for the figures to be incorrect by as much as they were, ie 30%.

Our thoughts

This case shows that a disclaimer stating that the final figure will be different from the one initially quoted is unlikely to absolve the trustees from liability if the initial figure is based on incorrect data and therefore out by a wide margin.


Pensions minister launches simpler 2 page benefit statement

At the Pensions and Lifetime Savings Association (PLSA) annual conference on 18 October 2018, pensions minister Guy Opperman launched a "simpler annual pension statement" designed as a model for providing scheme members with key information in a two page statement. The wording of the statement has been drafted on the assumption that the scheme is money purchase. Use of the new short form statement is not currently mandatory, but the EU directive IORP II contains provisions on standardised benefit statements and the model statement appears to have been designed with a view to showing how schemes can comply with the relevant IORP II provisions once the government fully implements the directive (which it has said it intends to do notwithstanding Brexit).

Ban on pensions cold calling now in force

On 9 January 2019, regulations came into force banning cold calling for the purpose of direct marketing in relation to pension schemes. There are some exceptions from the ban, eg for certain pre-existing client relationships with FCA-authorised persons.

Single Financial Guidance Body to be renamed "Money and Pensions Service"

The Single Financial Guidance Body (SFGB) was officially launched in January 2019 and is to be re-named the "Money and Pensions Service" with effect from 6 April this year. It will be responsible for the services previously provided by the Money Advice Service, Pension Wise and the part of the Pensions Advisory Service (TPAS) that did not deal with dispute resolution. The dispute resolution function of TPAS has already transferred to the Pensions Ombudsman's office.

Government confirms SSASs will continue to pay lowest level (tier 1) date protection charge

In its response to its consultation "Review of exemptions from paying charges to the Information Commissioner’s Office", the Government has confirmed that SSASs will automatically be classed as "tier 1" for the purposes of paying the data protection charge. The tier 1 annual charge is currently £40 (or £35 if paid by direct debit).

ICO guidance on passwords and encryption

On 1 November 2018 the ICO published guidance on passwords and encryption. On passwords, the ICO recommends that those with responsibility for password policies:

  • only set password expirations if absolutely necessary, as regular expiry often causes people to change a single strong password for a series of weak ones;
  • require passwords to be at least 10 characters, but do not set a maximum length unless this is necessary due to limitations of the website code;
  • should allow the use of special characters, but not insist on it;
  • should screen passwords against a "password blacklist" and not allow users to use a common weak password and common words or phrases that relate to the service. The list should be updated on a yearly basis.

The ICO guidance on encryption says that organisations should have an encryption policy. It explains the basics of encryption and what the key considerations are.

Key contact

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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