Pension transfer value rights: no requirement for member to be an “earner”

A recent Deputy Pensions Ombudsman (DPO) decision has concluded that a member does not have to be an “earner” in order to have a statutory right to have a transfer value paid to an occupational pension scheme (Mrs T, CAS-78486-R9D8).  This decision goes against previous Ombudsman decisions and the generally understood position since the case of Hughes v Royal London was decided in 2016.

Section 95 of the Pension Schemes Act 1993 provides that in order for the right to a statutory transfer value to apply in relation to a transfer to an occupational pension scheme, the transfer must be for acquiring “transfer credits” under the rules of the receiving scheme.  “Transfer credits” is defined as meaning rights allowed to an “earner” under the rules of an occupational pension scheme. 

In the Hughes case, both parties to the case agreed that the scheme member, Ms Hughes, herself had to be an “earner” in order to have a statutory transfer right.  The dispute between the parties was whether Ms Hughes had to be an earner in relation to a scheme employer or whether she could be an earner by reference to remuneration or profit received from an unrelated employer.  The judge in the case raised the question of whether the member had to be an earner at all, or whether the definition of “transfer credits” could be read as referring to rights of a type accorded to earners generally.  However, as neither party supported this interpretation, the judge proceeded to decide the case on the assumption that the member personally had to be an earner.

The DPO concluded that that the correct interpretation was that put forward by the judge in Hughes but rejected by the parties, namely that for the statutory right to a transfer value to apply, there is no requirement for the member personally to be an earner, but simply a requirement for the rights conferred in the receiving scheme to be rights of a type accorded to earners.

Our thoughts

The DPO’s decision involved a technical point of interpretation, but it’s an important one because it means that a member does not personally have to be an “earner” to have a right to a transfer value.  This is in turn important because members who lose money as a result of transferring to an arrangement that turns out to involve a high risk investment or scam will sometimes bring a complaint against the transferring scheme trustees arguing that they should not have made the transfer in the first place.  It will be easier for trustees to defend themselves if they were under a legal obligation to make the transfer.