(2 min read)
Pension scheme members who lose their funds after taking a transfer value will often bring a claim against the transferring scheme trustees, claiming that they should have blocked the transfer. However, recent Pensions Ombudsman decisions indicate that in most cases claims against transferring scheme trustees are likely to be unsuccessful, with the Ombudsman being clear that regulatory guidance setting out good practice should not be treated as imposing legal obligations. We take a look at a recent unsuccessful complaint about a transfer value and consider what it tells us about the Ombudsman's likely approach to future cases.
The Deputy Pensions Ombudsman (DPO) has not upheld a complaint against the transferring scheme trustee where a member suffered substantial losses after taking a transfer value from his employer’s occupational scheme to another occupational scheme (CAS-54901-V6R7).
The DPO considered whether the member, Mr S, had a statutory right to a transfer value. Section 95 of the Pension Schemes Act 1993 provides that 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. At the time of the transfer, Mr S did not fall within the statutory definition of “earner”. However, in line with another recent decision, the DPO concluded 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.
A further complication was that Mr S had submitted his transfer request outside the statutory 3 month guarantee period within which the transferring scheme was legally obliged to honour a transfer value quotation. The DPO noted that the scheme rules gave the trustee discretion to pay a transfer value equal to the statutory cash equivalent where the member had no statutory right. She found that the wording of the form signed by the member was broad enough to be accepted under the rule allowing a discretionary transfer value. The DPO said that the three month guarantee period was for the benefit of the transferring scheme. Had she not found that the transfer was paid under the trustee’s discretionary powers, she would have found that the trustee had waived its right to decline to pay a transfer value.
The DPO found that the trustees were not obliged to consider all discretionary transfers on a individual basis. On the evidence, the DPO found that the transfer was made pursuant to a standing practice of allowing transfers under the discretionary rule where they did not meet the conditions for a statutory transfer. The DPO also found that the trustee was under no duty to consider whether the transfer value was in the member’s own interests.
Following another recent determination, the DPO found that the trustee was under no duty to carry out due diligence in relation to a transfer value beyond ensuring that the applicable requirements of the legislation and scheme rules were met. The DPO referred to the “fraud action pack” for pensions professionals issued by the Pensions Regulator in 2013 and updated in 2014, but noted that as a matter of law the action pack could not impose new due diligence duties or liabilities on trustees. Nor was there any legal duty for trustees to send members a copy of the Regulator’s “Scorpion” warning leaflet.
Finally the DPO considered whether the transferring scheme trustee had voluntarily assumed a duty to carry out due diligence in relation to the transfer, but concluded that it had not. Carrying out checks to ensure that a transfer was in accordance with scheme rules did not imply an assumption to carry out other due diligence.
Our thoughts
This and other recent determinations appear to signal a change in approach from the Pensions Ombudsman (TPO). Firstly, TPO does not consider that the question of whether a member has a statutory right to a transfer value is dependent on whether the individual member is an “earner” under the statutory definition. Secondly, TPO is clear that Regulator publications such as the “Scorpion” leaflet and fraud action pack which have no special status under legislation should not be treated as imposing obligations on scheme trustees.
