Court of Appeal's landmark Carey Pensions ruling: what does it mean for your SIPP business?
The Court of Appeal has allowed the appeal in the case of Adams v Options UK Personal Pensions LLP (formerly known as Carey Pensions UK LLP). The ruling means that SIPP providers who accept business from unregulated introducers will largely bear the risk of the introducer having provided investment advice or made arrangements which breach the general prohibition in FSMA. The judgment also holds that:
- steering an individual towards a particular SIPP provider can constitute regulated investment advice; and
- recommending an unregulated investment in circumstances where the purchase of it will inevitably involve a transfer from an existing SIPP will also constitute regulated investment advice.
For more information, click here.
SIPP directors successfully defend disqualification proceedings
In its judgment in the Secretary of State for Business, Energy and Industrial Strategy v Evans, the court has rejected an application by the Government for an order disqualifying two former directors of a SIPP trustee company from acting as company directors.
The government had argued that there had been a failure to act in accordance with the FCA's regulatory framework governing SIPPs and that such failure meant that the directors were unfit to be company directors. However, the judge held that any failings on the part of the directors did not amount to incompetence to a degree that would justify a finding of unfitness.
The case raises important questions regarding the extent to which alleged failings specific to the SIPP regulatory regime might justify an order to disqualify someone from acting as a director altogether. Addleshaw Goddard LLP acted for the directors in the case. For more detail, see our e-bulletin.
Court holds Ombudsman acted reasonably in not allowing SIPP complaint to be withdrawn
In the case of Neil Cunningham v Namulas Pension Trustees Limited, the Court of Session in Scotland has held that the Deputy Pensions Ombudsman (DPO) did not act unreasonably in refusing to allow a member to withdraw a complaint at a late stage when it was apparent that the DPO was not minded to uphold the complaint.
The background to the case was that HMRC had levied unauthorised payment tax charges on the member's SIPP as a result of property held by the SIPP being converted from commercial to residential use. The circumstances in which the change to residential use occurred were complex, with the judge describing the situation surrounding the property as "an intricate legal web". The SIPP trustee had formally appointed Mr Cunningham as managing agent for the property. The property subsequently became the subject of litigation between the SIPP trustee and the property's occupiers which culminated in a settlement agreement which involved the property being sold to the occupiers.
Mr Cunningham brought a Pensions Ombudsman complaint against the SIPP trustee alleging that it had breached its fiduciary duty by, among other things, failing to prevent the properties becoming residential for tax purposes. The DPO issued a preliminary decision that she was not minded to uphold the complaint. Following this, Mr Cunningham wrote to the Ombudsman saying that the DPO would no longer be dealing with his complaint. He said that he had commenced court proceedings against the SIPP trustee. The relevant legislation provided that a complaint could only be withdrawn with leave of the Pensions Ombudsman, such leave not to be unreasonably refused. The SIPP trustee urged the DPO to complete the complaint process. It pointed out that it had incurred legal fees of about £68,000 and argued that it would be a waste of time and resources for the matter to be re-litigated. The DPO refused to allow Mr Cunningham to withdraw his complaint. She subsequently issued a determination in accordance with her preliminary view that Mr Cunningham's complaint should not be upheld.
Mr Cunningham appealed to the court arguing that the DPO should have allowed him to withdraw the complaint. The court held that it was reasonable for the DPO to refuse to allow Mr Cunningham to withdraw the complaint. It took into account that the complaint was nearing a final determination and that the SIPP trustee had already incurred legal fees of £68,000.
Legislation allows for court proceedings to be stayed if they are brought in respect of a matter which is already the subject of a Pensions Ombudsman complaint. Had the court's decision gone the other way, this might have encouraged complainants to try to withdraw Ombudsman complaints that are not going their way, with the aim of having a "second bite at the cherry" in court. This case was dealt with by the Scottish courts, but the reasoning applied by the court would apply equally under English law.
FCA v Avacade appeal hearing
In our last Update we reported on the High Court's ruling in FCA v Avacade in which the judge ruled that various persons had breached the prohibition on carrying out regulated activities without the requisite FCA authorisation. The Court of Appeal has now heard an appeal in the case and judgment is awaited.
Court of Appeal overturns refusal to approve transfer of insurance business from Prudential to Rothesay
The Court of Appeal has allowed an appeal from a High Court judge's refusal to give approval under Part VII of the Financial Services and Markets Act 2000 to the transfer of approximately 370,000 annuities from The Prudential Assurance Company to Rothesay Life plc.
Two key reasons for the High Court judge's decision to refuse to approve the transfer had been:
- Rothesay Life's capital management policies did not match those of Prudential and it could not rely on the support of a large well-resourced group over the lifetime of the policies with a "reputational imperative" to support a company carrying its name; and
- it had been reasonable for policyholders to have chosen Prudential on the basis that it would not seek to transfer their annuity to another insurer.
The Court of Appeal said the crucial question for the court was whether the proposed scheme would have a material adverse effect on policyholders, employees or other stakeholders. Even if the court does find that a scheme will have a material adverse effect on some groups of policyholders, there may be reasons that justify its approval.
On the facts of the case, the Court of Appeal held that the High Court judge had been:
- wrong to conclude that there was a material disparity between the two insurance companies' likely need for, or availability to them of, external support over the lifetime of the annuity policies;
- wrong to regard the likelihood of non-contractual parental support being available in the future as a relevant factor to be taken into account; and
- wrong to accord any weight to any subjective preference of policyholders for Prudential to provide their annuities in the light of Prudential's age and established reputation, or to accord any weight the fact that policyholders may reasonably have assumed that Prudential would continue to be the provider of their annuities for their full term.
In reaching its judgment Court of Appeal took into account: that Rothesay Life met the requirements of the "Solvency II" directive; the opinion of the independent expert; the non-objection of the FCA and the Prudential Regulation Authority; and the ongoing requirements of the regulatory system applicable to Rothesay Life.
The High Court's refusal to sanction to the transfer was widely regarded as having given a surprising amount of weight to the value that individual policyholders might attach to having their annuities with a particular well known insurance company. The Court of Appeal judgment brings helpful clarity to the test which a court should apply when asked to sanction a transfer of business from one insurance company to another.
High Court clarifies scope of Fraud Compensation Fund
In the case of Board of the Pension Protection Fund v Dalriada Trustees Ltd, the High Court has clarified various aspects of the law relevant to the Fraud Compensation Fund (FCF) which is operated by the Pension Protection Fund. The FCF was established to provide compensation where a scheme's assets have been reduced as a result of a dishonesty offence. The case came about after the PPF was notified of a large number of claims on the FCF in respect of occupational pension schemes which had been used as vehicles for pension scams. The PPF sought court rulings on various legal issues in order to ensure that it correctly administered the scheme. One point of potentially wider relevance is the court's ruling on section 99 of the Pension Schemes Act 1993 which provides for trustees to be discharged from liability when they have paid a transfer value after the member has exercised his statutory right to a cash equivalent transfer value. The judge considered that trustees would not be discharged from liability under the legislation if they made a transfer to an arrangement which was a sham at the time of the transfer even if the trustees were unaware that the arrangement was not a genuine occupational pension scheme.
Even though some of the issues in this case will only be relevant to the PPF in its administration of the Fraud Compensation Fund, the judgment raises the possibility that trustees will not be discharged from liability to provide benefits if they make a transfer to an arrangement which they believe to be an occupational pension scheme, but which is actually a sham. This underlines the importance of trustees making appropriate checks in relation to the receiving scheme before paying a transfer.
Reliance on incorrect financial advice was reasonable excuse for late application for enhanced protection
The tax First-tier Tribunal had held that a scheme member had a reasonable excuse for a late application for enhanced protection where the member had relied on his financial adviser, a regulated adviser qualified to give financial and pension advice, who had failed to take into account the member's pensions in payment (Dr J Gibson (Deceased) v The Commissioners for Her Majesty's Revenue and Customs). That reasonable excuse had ended on 2 December 2016 when the original adviser firm advised the member that making a retrospective claim for enhanced protection was out of its competence and recommended an alternative firm. This was the case even though the member had contacted the original adviser firm in February 2016 to make a complaint and seek redress, as the original adviser firm had continued to advise the member in connection with his enhanced protection claim up until 2 December 2016.
The member's new advisers applied for enhanced protection on the member's behalf on 6 February 2017, so there was a gap of 9 weeks between the reasonable excuse ending and the application being made. The Tribunal held that this delay was not unreasonable, taking into account the Christmas period and the time for the new advisers to carry out client acceptance procedures, obtain papers, verify facts and prepare the claim. It held that, having regard to the member's lack of experience in pension matters, it was reasonable for him to instruct advisers to make the claim for enhanced protection on his behalf.