By Ben Fairhead, Partner, and Nicola King, Solicitor, at Pinsent Masons
This year we have seen a re-brand of the Regulator's campaign with a cork placed over the sting. But was this merely aspirational or reflective of the battle against pension liberation being won?
Rebranded campaign/Code of Good Practice
The Regulator's re-branded campaign with its tagline of "Scamproof your savings" tied in with the launch in March 2015 of the Code of Good Practice prepared by the Pension Liberation Industry Group, designed to provide clearer guidance for the industry in spotting and reducing the risks of transfers to pension scams. This also linked in with a desire to heighten awareness of scams around the time of Freedom and Choice coming into effect.
Neither the Regulator's campaign nor the Code of Good Practice is legally binding, however. Indeed, as against that background, we saw an interesting picture unfold in the interpretation of the law surrounding pension transfers.
Pension transfers – to allow or to decline?
A hint had been provided already of the Ombudsman's approach to complaints about declined transfers of pensions in his early determinations in 2015. Further determinations followed in April and June 2015 in relation to other individuals, whose transfer requests had been declined.
In both cases, the Ombudsman reiterated his view that the absence of an earning relationship between the individuals and their respective intended receiving scheme employers meant there could be no statutory right to a cash equivalent transfer value. In the case of Donna-Marie Hughes, this was critical given it justified the refusal by Royal London to decline the transfer.
Hot off the press though, this "earner" issue has just been looked at afresh by the High Court as a result of Miss Hughes appealing her Ombudsman determination. Mr Justice Morgan has overturned the Ombudsman on this point, ruling that the legislation governing transfers does not explicitly require an individual to be an "earner" in relation to the receiving scheme employer. Instead, it is sufficient to be an "earner" in any capacity.
Potential consequences
It is early days since the High Court decision, but it is likely to make pensions providers and trustees more wary of declining transfers. Notwithstanding the regulatory guidance and the Code of Good Practice, if warnings to members of schemes wishing to transfer go unheeded, there will be limited grounds available to justify blocking transfers legitimately even where there are genuine concerns about the risk of pension funds going into scams. The "earnings" link between an individual and a scam "employer" was not easily fulfilled unless contrived in some way.
Some may see this as an improved position for the industry since it might well reduce the administrative burden on those conducting onerous due diligence, in particular when it involves multiple SSAS's. Others may feel concerned about the reduced scope for protecting individuals vulnerable to the pressure of third parties, whose motives not unreasonably might be questioned when they lean so heavily and persistently on both the individuals and the existing pensions provider to ensure transfers proceed.
There may well be a debate about this over the coming months, and no doubt differing views on how best to grapple with the risk of more monies flowing into scams.
Ombudsman determinations where pension funds lost
The past year has seen five complaints determined by the Ombudsman where in each case the applicant's provider transferred his pension into what transpired very possibly to be a scam and resulting in pension funds being lost. In each case the applicant complained that insufficient checks were made before the transfer was allowed.
The Ombudsman has so far found firmly in favour of the providers concerned. He has deemed it sufficient if the relevant receiving scheme purported to be an occupational pension scheme and willing to accept a transfer and if the transfer was made prior to February 2013, critically described as a "point of change" when, as a result of the Regulator's scorpion campaign, standards of practice in the industry can be said to have changed.
It remains to be seen what approach will be taken with those complaints where transfers were made much later than February 2013. There is a hint in the determinations to date that the Ombudsman may still find in favour of the providers if satisfied that individuals would have persisted with transfer requests in spite of warnings about pension scams.
The future
We are likely to see a continuing battle over the next 12 months between those trying to heighten public awareness of pension liberation/scams and unscrupulous fraudsters seeking to exploit gaps in the law. It will be a critical period for seeing the impact of the new High Court decision as well as more statistics coming through following the advent of Freedom and Choice.
Time will tell whether the scorpion really has been "corked" or whether something stronger – perhaps a change in the law - is required to control that sting.
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