High Court judgment shows high bar to challenging FOS decisions

The High Court's recent judgment in the case of R (Portal Financial Services LLP) v Financial Ombudsman Service Ltd illustrates the hurdles to successfully challenging a FOS decision in court.  The Portal case also raised the issue of the extent to which one regulated party should be expected to bear liability for the wrongful acts of another. 

Portal, a firm with permission to advise on pension transfers, advised a number of clients introduced to it by Cherish.  Cherish was the appointed representative of an FCA-authorised financial advisory firm that did not have permission to advise on pension transfers.  Portal advised clients on transferring from their existing pension arrangements into a SIPP on the understanding that Cherish would provide further advice on the investments to be held within the SIPP.  Cherish assured Portal that it did not recommend unregulated collective investment schemes (UCIS). However, Cherish did in fact advise almost all its clients to invest in a high risk UCIS.  The clients sustained losses as a result.  Cherish went into winding-up.  FOS held Portal liable for the losses on the basis that it was not entitled to separate the giving of advice on the suitability of a pension transfer from considering the suitability of the underlying investments.

The High Court refused Portal's application for judicial review of FOS's decision.  The judgment highlights that FOS is required to reach decisions that are fair and reasonable in the circumstances.  FOS is required to "take into account" relevant law, but that allows it flexibility to depart from relevant law provided it explains why.  To successfully challenge a FOS decision in court, it is broadly necessary to show that FOS acted irrationally or applied the law incorrectly.  The court will not overturn a FOS decision simply because the court would have decided the case differently. FOS is not obliged to take the same approach as a court in apportioning liability between parties.  That sets a high bar for successfully challenging a FOS decision.

Supreme Court refuses leave to appeal in Adams v Options UK Personal Pensions LLP

The Supreme Court has refused leave to appeal in Adams v Options UK Personal Pensions LLP (widely known as the Carey Pensions case).  This means that the Court of Appeal judgment remains good law for the foreseeable future, as do those parts of the High Court judgment in the case that were not subject to appeal.  For a recap of the key issues decided by the High Court and Court of Appeal, see our e-bulletin.

Tribunal holds SIPP provider's services not entitled to insurance VAT exemption

In Intelligent Money Limited v HMRC, the First-Tier Tribunal Tax Chamber has held that services provided by a SIPP provider in connection with the provision of SIPPs were not exempt from VAT under the exemption for insurance.  The Tribunal concluded "with some caution" that the terms of the SIPP did fall within the general definition of insurance.  However, it did not automatically follow that the SIPP was an "insurance transaction" for the purposes of benefiting from the relevant VAT exemption which originated from EU law.  In order for a supply to be VAT exempt as an insurance transaction, the insured had to pay the insurer to assume a financial risk.  This was not the case in relation to the SIPP in question where the annual fees paid by the member were for the SIPP provider's services and did not include any element of risk premium. The SIPP benefits were entirely funded by the member's contributions held on trust and the SIPP provider did not need to accumulate capital from which to pay the benefits.

Tribunal holds IOU from member did not attract tax relief

In the case of Mattioli Woods Plc v HMRC, the First-tier Tribunal (Tax) has held that an IOU from a member to a SIPP provider was not a monetary contribution within the meaning of section 188 of the Finance Act 2004 and therefore did not qualify for tax relief.  The Tribunal held that the intention of the legislation was clearly that tax relief is only available in the tax year in which the taxpayer deprives himself or herself of either money or an asset which meets the criteria for an "in specie" contribution.

Our thoughts

This case is part of the continued fall-out from the case of HMRC v Sippchoice in which the Upper Tribunal held that, for the purposes of obtaining tax relief under section 188 of the Finance Act 2004, only monetary contributions were "contributions paid".  The Sippchoice case sent shockwaves through the SIPP industry as the position taken by HMRC effectively represented a U-turn on its previous position of allowing tax relief on specie contributions provided the member and scheme followed a procedure set out in the tax manuals. That procedure involved the member creating a monetary debt and then settling the debt by way of a transfer of assets.

Had the Tribunal's decision gone against HMRC on the monetary contribution issue, HMRC planned to argue that the IOU did not in any event create a legally binding obligation.

Court holds creditors able to claim against pension rights of fraudulent bankrupt

In the case of Bacci v Green, the High Court has made an order which will effectively enable the member's creditors to enforce their debts against a member's pension fund.  The court ordered the member to delegate to his creditors the power to revoke the member's enhanced protection and to request payment of a pension commencement lump sum and lifetime allowance excess lump sum on the member reaching age 55.

The member had been made bankrupt after fraudulently obtaining loans.  Under section 11 of the Welfare Reform and Pensions Act 1999, his pension rights were excluded from his estate on bankruptcy.  Because the member's debts had been incurred in respect of fraud, his bankruptcy did not extinguish them.

The member argued that, given the statutory protection afforded to pension rights on bankruptcy, it would be contrary to public policy for the court to make an order which effectively allowed his creditors to make a claim against his pension rights.  However, the court rejected this argument saying that the overriding public policy consideration was that fraudsters should not prosper.

Court approves payment of lump sum death benefit to beneficiary who was also a trustee

In its judgment in Punter Southall Governance Services Limited v Benge, the court has approved a trustee decision to pay a death benefit of over £400,000 to a beneficiary who was herself a trustee of the pension scheme.  The judgment considers both the meaning of the term "dependant" and the court's approach to the management of trustee conflicts of interest.  For more detail, click here.

Successful appeal against unauthorised payments charge where HMRC followed incorrect procedure

In Curtis v HMRC the First-Tier Tribunal Tax Chamber has allowed a member's appeal against an unauthorised payments charge, holding that HMRC had not followed the correct procedure when making the tax assessment.  Click here for more detail.


New requirements for overseas entities holding real estate

The Economic Crime (Transparency and Enforcement) Act 2022 will impose new requirements for overseas entities (OE) that hold or intend to acquire real estate in the UK to register their details, and details of their beneficial owners, on a new public register maintained by Companies House (OE Register).  An OE means a legal entity that is governed by the law of a country outside the UK.  The relevant provisions of the Act are not yet in force, but could be brought into force at short notice, following which OE will have a 6 month transitional period in which to register.  Failure to register within the deadline is a criminal offence. An OE will not generally be entitled to be a registered owner of property at HM Land Registry unless it has registered on the Companies House OE Register.  SIPPs and SSASs intending to enter into any UK real estate transactions with OE should make sure they understand the possible impact of the Act on the transaction.  For more detail, see this briefing from our Real Estate team.

Pensions Ombudsman

Ombudsman rejects complaint that scheme administrator failed to ensure proper advice received

The Pensions Ombudsman has rejected a complaint by a SSAS member that the scheme administrator failed to ensure that the member took proper advice and understood the risks of the arrangement he was entering into (Mr L PO-16688).  Click here for more detail.

Ombudsman holds member in receipt of Jobseeker's  Allowance had no right to a transfer value

The Pensions Ombudsman has upheld a complaint against the Ministry of Defence (MoD) by a former member of the Armed Forces Pension Scheme who lost the value of his pension fund after transferring to a scam arrangement in 2013 (PO-11134). A key element of the Ombudsman's determination was that as the member was in receipt of Jobseeker's Allowance and not in employment at the time of the transfer, he had no right to a cash equivalent transfer value (CETV), as the right to a CETV only applied to "earners". The MoD had argued that the member had a statutory right to a CETV and that there was therefore no legal basis on which the MoD could have stopped the transfer value.  The Ombudsman ordered the MoD to reinstate the member's benefits in the Scheme or, if this was not possible, to provide him with the equivalent benefits by means of another pension arrangement.

Our thoughts

A noteworthy feature of this case is that the Ombudsman concluded that the member might well have chosen to proceed with the transfer even if the risks had been brought to his attention.  However, he upheld the complaint because the MoD erroneously concluded that it had to make the transfer when it should not have done so.

The events that were the subject of this determination occurred years before the changes to the transfer values regime which took effect from 30 November 2021.  For transfers to most schemes, trustees are now required to consider whether "red flags" or "amber flags" are present which may indicate a scam.  If there is a red flag, the trustees must not make the transfer.  If there is an amber flag, the trustees may only make the transfer if the member has taken "scams guidance" from the Money and Pensions Service.

Ombudsman holds administrator and employer partially liable for tax due to late payment of death benefit

In a case involving a section of the Railway Pension Scheme, the Ombudsman has held the scheme administrator and the employer partially liable for the tax incurred as a result of a lump sum death benefit being paid outside the two year window for paying the death benefit tax free (Mrs NiR CAS-55335-N3F2).  However, the Ombudsman only made an award for two thirds of the tax rather than the full amount, holding that the potential beneficiaries has been partially responsible for the delay.  Click here for more detail.

Ombudsman upholds death benefits complaint against member trustee of SSAS

The Ombudsman has upheld a complaint against the surviving member trustee of what had been a two member SSAS (Mrs YCAS-59054-Y3C4).  There was a dispute as to how the funds held within the SSAS should be apportioned between the two members.  This issue would determine how much was payable as a death benefit to the deceased member's widow, Mrs Y.  Following a previous Ombudsman complaint by Mrs Y, it had been agreed that the surviving member trustee and the SSAS's professional trustee would appoint an independent expert to determine the matter, as permitted by the SSAS's trust deed and rules.  The independent expert had given a determination which had determined that the fund should be split 54.80%/45.20%. Mrs Y complained that the surviving member trustee, Mr L, was attempting to delay and frustrate the process, including failing to provide the professional trustee with an up-to-date portfolio valuation.  (Mr L brought his own complaint to the Ombudsman arguing that he should not be bound by the independent expert's opinion, but this complaint was not upheld.)

The Ombudsman upheld Mrs Y's complaint against Mr L.  He directed Mr L to cooperate with providing a portfolio valuation, reimburse Mrs Y for any tax charge arising as a result of late payment of the benefits, and pay Mrs Y £2000 for the distress and inconvenience she had sustained as a result of Mr L's failure to manage his conflict of interest.  The Ombudsman criticised Mr L for his failure to acknowledge and take steps to manage his conflict of interest.  He pointed out that the trust deed and rules governing the SSAS allowed a trustee to delegate a decision.  He said that he could see no reason why Mr L did not take this approach from the outset.

Our thoughts

This determination highlights the type of conflict of interest that can arise when there is a dispute relating to a SSAS.  Unlike in the case of Punter Southall Governance Services Limited v Benge, the trustee in this case sought to take an active decision-making role in relation to the death benefit despite an obvious conflict of interest.


FCA writes to SIPP providers regarding its supervision work

In April the FCA wrote to SIPP operators saying that reducing harm from high risk investments is one of its priorities.  The FCA says that it is gathering information from some firms regarding their due diligence processes in order to assess whether their systems and controls are in line with its expectations. Through a data request sent to all SIPP operators, the FCA is collecting details of all assets held by firms.  The FCA explains that it is asking for information on all assets because it has seen some firms miscategorise non-standard assets as standard assets.

The FCA is concerned about significant claims on the FSCS following the failure of several SIPP operators as a result of "the crystallisation of liabilities arising from due diligence failings".  The FCA has found that the majority of such firms had not been modelling their potential liabilities and therefore their capital requirements appropriately.  The FCA says it is requesting "more granular liability modelling information" from firms with outstanding Financial Ombudsman Service (FOS) complaints.  The FCA expects firms to assess their liabilities on a "worst case" basis of FOS upholding complaints, as well as providing the firms' assessment of liabilities based on similar cases where FOS has issued final decisions.

Where firms are identified as being at risk of having insufficient assets to meet their liabilities, the FCA will engage with the firm "to ensure there is a robust plan for addressing any shortfall".  If this is not possible, the FCA will look to use its powers to secure asset restrictions "to minimise risk of disorderly failure".

The FCA's letter also flags the need for SIPP operators to be appropriately prepared for the Consumer Duty rules which will be introduced in July.  It says firms need to have robust processes in place to ensure customers do not invest in "assets that should not be in SIPPs".  Firms also need to ensure they have sufficient capital to meet potential liabilities in order to prevent disorderly firm failures.

Pensions industry reacts to start of "stronger nudge" rules

The "stronger nudge" rules came into force on 1 June 2022.  Broadly, the rules require pension providers to offer to book members an appointment with the Pension Wise guidance service where it appears likely the member will start to receive benefits soon.  (For more detail, see our last Update.)  There has been a mixed reaction to the stronger nudge rules from the pensions industry.  There is general support for the principle of encouraging members to take guidance before they start to receive their benefits.  However, some in the industry have expressed concerns about low take up in practice, possibly linked the "stronger nudge" being given at too late a stage.  Some have also expressed the view that what members really need is guidance that is more tailored to their personal circumstances.

Financial Ombudsman Service

FOS increase to award limits

The Financial Ombudsman Service (FOS) has announced an increase to its award limits with effect from 1 April 2022.  With effect from that date, the award limits are:

  • £375,000 for complaints referred to FOS on or after 1 April 2022 about acts or omissions by firms on or after 1 April 2019; and
  • £170,000 for complaints referred to FOS on or after 1 April 2022 about acts or omissions by firms before 1 April 2019.
The Pensions Regulator

Changes to Dealing with transfer requests guidance

On 5 July the DWP and Pensions Regulator (TPR) issued a joint statement on the regulations governing transfer values, and TPR published some changes to its Dealing with transfer values guidance.  The changes flag that trustees may consider making use of discretionary powers under the scheme rules to make a transfer value despite the presence of an incentive payment (red flag) or overseas investments in the receiving scheme (amber flag) where trustees consider the risk of a scam to be low.  The changes followed widespread reports in the pensions press that one pension provider had accused other firms of taking advantage of the transfer regulations to avoid making transfers.

Regulator highlights scam concerns about "international SIPPs"

In a blog post about pension scams, TPR reports that, as well as out and out criminality, members' funds can be at risk from high fees and unsuitable advice.  TPR has found that concerns about these risks are often linked to transfer requests which look to facilitate investment overseas through a UK-registered SIPP.  TPR has found that those requesting such transfers frequently live overseas, with the transfer facilitated by intermediaries and advisers outside the UK who "coach" the member through the transfer process.


Pensions industry raises concerns about dashboard proposals

The pensions industry has raised significant concerns regarding the FCA and DWP's proposals for the introduction of pensions dashboards. (For more detail on the consultations, see our previous Update).  Key concerns raised are:

  • that the FCA's proposed timescale, which will generally require providers of personal pension schemes to connect to the dashboard by 30 June 2023, is extremely ambitious;
  • that there will be limited capacity to contract with third party solution providers in the time available as the market is still developing;
  • that compliance is dependent on MaPS technical standards that have yet to be published for consultation and rules that are yet to be finalised;
  • potential lack of consistency in approaches between the FCA and DWP.

In a separate but related development, the Association of Consulting Actuaries has expressed concerns regarding the FRC's proposed changes to AS TM1 on which we reported in our previous Update.  The ACA supports the general principle of amending AS TM1 to increase consistency where individuals have several different pension pots.  However, it is concerned that the proposals on accumulation rates could create problems of understanding for individuals and significant additional work for fund managers.  It is also concerned that the proposals can create anomalies where, for example, bond prices are volatile.  The ACA says that on balance it would prefer an approach based on asset class.  

The ACA notes that most individuals do not take annuities at retirement.  It therefore thinks further thought should be given to the form of benefit illustrations in order to better match what individuals would typically do when they take benefits.  The ACA also believes that AS TM1 should refer to and give guidance on any additional projections for the dashboard that are not currently referred to in AS TM1.

Expansion of Dormant Assets Scheme to include pension funds

The Dormant Assets Scheme (DAS) is being expanded to enable it to accept funds from pension schemes.


The current DAS allows banks and building societies to pay funds from certain dormant accounts to an "authorised reclaim fund" which then distributes funds to good causes.  The DAS is underpinned by three principles:

  • Reunification first: participants' priority is to trace asset owners and reunite them with their assets;
  • Full restitution: asset owners can at any point claim from the reclaim fund the amount that would have been due them had a transfer to the DAS not occurred; and
  • Voluntary participation: firms that are eligible to participate in the DAS can choose whether to do so and to what extent.

Which pension scheme assets are potentially eligible for transfer to the DAS?

The Dormant Assets Act 2022 will allow operators of personal pension schemes to transfer "dormant eligible pension benefits" to the DAS, subject to the reclaim fund consenting to the transfer.  Broadly, benefits are classed as dormant if:

  • the person in respect of whom the benefits are payable has died and there is no other person to whom the benefits are payable;
  • more than 7 years have elapsed since the death of a person to whom benefits were payable, and the pension provider has not received any communication from anyone administering the deceased's estate or from any other person to whom the benefits are payable;
  • the person to whom the benefits are payable would be at least 120 years old and during the previous 7 years the provider has not received any communication from that person, anyone administering that person's estate or any other person entitled to receive payment; or
  • pension benefits have become payable by virtue of the pension contract term ending, 7 years have elapsed since the end of the term, and the pension provider has received no communication from the person to whom the benefits are payable.

Investments in with-profit funds and funds from schemes used for auto-enrolment are not eligible for transfer.  

Regulations which come into force on 1 August 2022 will provide that a transfer from a pension scheme in accordance with the DAS legislation is an authorised payment for tax purposes.

The FCA has consulted on changes to its rules to reflect the expansion of the DAS, for example by ensuring that current and former customers of pension providers are eligible to complain to the Financial Ombudsman Service about the reclaim fund.

Government confirms intention to proceed with ban on corporate directors

In a White Paper published in February, the Government confirmed its intention to prohibit companies from being directors, subject to an exception allowing corporate directors where all the directors of the corporate director are natural persons.  In other words, corporate directors are permitted provided there is not more than one "layer" of corporate directors.

The Government has not yet given an indication of the timescale within which the ban will be brought into force.

Our thoughts

SIPP and SSAS providers should consider whether their current corporate structure involves the use of corporate directors and, if so, whether all the directors of the corporate director are natural persons.  Where the group structure involves more than one "layer" of corporate directors, it will be necessary to consider how that structure could be altered to avoid falling foul of the future prohibition.

DWP call for evidence on helping members make informed decisions about their pension saving

The DWP has published a call for evidence to explore what support members of occupational pension schemes need in order to help them make informed decisions about how to use their pension savings.  The call for evidence notes that as part of its Retirement Outcomes Review the FCA introduced a number of requirements for providers of personal pension schemes, including "investment pathways" to help non-advised members entering drawdown choose investments that better align with their objectives.  The DWP asks whether an investment pathways type solution would benefit members of occupational schemes.  The DWP is also looking at whether collective defined contribution (CDC) pension provision could be extended to a broader range of schemes, including master trusts, and play a role in providing a regular income in retirement for members.  The call for evidence asks what support schemes are currently providing to members to help them make the most of their pension saving.   

The consultation closes on 25 July 2022.

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Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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