Buck Bond Group

Pension industry awaiting rulings on scheme transfers

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From the Gilbert & Sullivan opera “Pirates of Penzance”

When a felon’s not engaged in his employment (his employment)
Or maturing his felonious little plans (little plans)
His capacity for innocent enjoyment (-cent enjoyment)
Is just as great as any honest man’s (honest man’s)

Our feelings we with difficulty smother (-culty smother)
When constabulary duty’s to be done (to be done)
Ah, take one consideration with another (with another)
A policeman’s lot is not a happy one

A policeman’s lot is not a happy one!

The law in relation to pension scheme transfers works in favour of the fraudster. Members are generally entitled to take a statutory transfer, and trustees of transferring schemes don’t have a legal right to refuse to make a transfer to a scheme registered with HMRC. It does not matter how suspicious they are of the receiving arrangement. According to the Pension Regulator, pension scams have already cost £495m in total (in truth, the figure is much higher) and the regulators (HMRC, tPR, FCA, etc.) have been running a campaign to counter pension scams since February 2013. Despite the trustees having no actual power to stop transfers, the Pensions Regulator has written to trustees to say they should help their members avoid becoming victims of crime and owe a duty to them to do so. Moreover, if trustees make a transfer which is deemed by HMRC to be unauthorised, then HMRC can – and on occasions will – impose a tax charge on the scheme.

Members who are refused transfers by trustees complain that they are entitled to transfer their money, and the fact the receiving scheme looks dodgy is none of the trustees of the transferring scheme’s business. Members who take transfers and lose out complain that the trustees of transferring arrangements should have done more before making the transfers. Trustees and providers have been doing their level best in very trying circumstances and making difficult decisions; they are spending more and more time and money on doing so. In other words, trustees are between a rock and a hard thing.

Enter stage left the policeman in the shape of the Pensions Ombudsman. Last autumn, at a forum run by the Regulator, he made few friends with his assertion that complaints were likely to be determined in favour of members. He has made the naïve statement that members who write to him insisting on their right to transfer will tend to be those who know what they are doing and believe they are on the right side of the line; actually, experience suggests some of those making the loudest noises know full well what they are doing wrong.

Well, now the Ombudsman has at least 84 cases. In his Pension Liberation update No 1, published in February, he said he would be publishing his first decisions in April/May. In update 2, published in June, he said things were “taking a little longer than we had hoped” and that “it is unlikely they will be published before July”. Now, in update 3, published on 20 August, whilst recognising the pensions industry is awaiting his rulings, he says he is not going to be in a position to make any decisions before autumn. So, in some cases, it will take the Ombudsman a year to decide if trustees (who have a fraction of that time to make a decision) should or should not have made transfers to receiving arrangements which are – or could be – dodgy. If he orders that trustees should have made the transfers, then the other regulators’ campaign against pension liberation will be thrown into disarray.

Trustees will be scared not to make transfers and the villains will make the £495m already lost to pension scams look like peanuts. If he decides trustees can refuse to pay, or that schemes that have paid are liable for subsequent losses where money went to dodgy schemes, he opens the floodgates for trustees to refuse to pay transfers to all but obviously above board schemes. At last, he is finding out just what it’s like to be a trustee, as he also finds himself joining trustees between a rock and a hard thing. The fact that the Ombudsman is taking so long to come to any decisions in any cases shows just how hard the original decisions were for trustees. One thing is for sure however, he cannot sit on the fence for ever. Meanwhile, whilst Felons (in the shape of pension scammers) continue to be engaged in their employment, the Ombudsman is finding to his cost that his lot is definitely not a happy one.