Scams: damned if you do, damned if you don’t?
The Pensions Ombudsman has declined to sanction two leading pension providers for paying transfers to a suspect pension scheme, while finding against another which refused to pay a transfer. These latest developments illustrate the need for pension scheme trustees to have clear procedures and policies in place to identify questionable transfers and to decide what to do about them if they are identified.
In two linked determinations the Ombudsman has adjudicated on complaints made by the same person that the providers of his personal pension schemes (Scottish Widows and Legal & General) paid out transfers at his request to the Capita Oak scheme in November 2012 without making sufficient checks. The complainant is now unable to locate his pension assets. They might be invested in “storage pods”.
The Ombudsman did not uphold the complaints, because it appeared that the complainant had a statutory right to transfer. Even if the complainant was right that greater due diligence should have been carried out (contrary to the Ombudsman’s view), the Ombudsman found that this would not necessarily lead to the reinstatement of his old benefits as the complainant might have persisted with the transfers.
The Ombudsman has also issued a pensions liberation update and a statement about Capita Oak in which he states that, despite having a great deal of sympathy with the complainant, it is unlikely that similar complaints in relation to the Capita Oak Scheme will be upheld.
By contrast the Ombudsman has upheld a complaint by an individual that Prudential refused to act on his request to transfer his personal pension scheme benefits to a small self-administered pension scheme. The Ombudsman found that the member had a contractual right to transfer under the terms of the personal pension scheme and the transfer payment would not have constituted an unauthorised payment. Although the terms of his membership of the receiving scheme were such as to not confer a statutory right to a transfer, the contractual right overrode the absence of a statutory right which meant that the transfer request should have been granted.
Furthermore there was no particular evidence that there was anything wrong with the receiving scheme and Prudential had not told the member its reasons for refusing to pay.
Apart from the time and effort though, there is no particular sanction against Prudential which is simply directed to pay the transfer (being the higher of the transfer value at the time of the refusal plus interest or the transfer value now).
Comment
At first sight, the two determinations upholding provider payment where the member seems to have a statutory right might seem to be encouraging to occupational scheme trustees who pay out in similar circumstances. However, the Ombudsman makes it clear that a crucial factor in reaching his decisions was that the Pensions Regulator had not then issued its guidance on pension fraud (this was in February 2013). Therefore, although it is helpful to know that hindsight will not be applied to Capita Oak transfers, it is unlikely to be safe to assume that similar events occurring now would not result in a complaint achieving reinstatement of lost benefits. In formulating approaches to dealing with questionable transfer requests regard will need to be had to the Code of Good Practice (see Pensions Bulletin 2015/13).
Prudential, which had the complaint upheld against it, is actually in quite a happy position. If it all goes horribly wrong in the receiving scheme it is well-nigh impossible to imagine how it could be required to reinstate when it only paid out because it was directed to by the Ombudsman.
Not long for some multi-employer schemes to meet “non-affiliated” trustee requirements
The 6 July 2015 deadline is looming for certain multi-employer schemes providing money purchase benefits to meet new “non-affiliated” trustee governance requirements.
Schemes affected are those classed as a “relevant multi-employer scheme” – broadly, those with participating employers not all of which are within the same group structure (or if the employers are partnerships they have at least half the partners that are different).
Such schemes are required to have at least three trustees, the majority of which should be “non-affiliated”. “Non-affiliated” broadly means that the trustee is not involved in providing advisory, administration, investment or other services to the scheme. The trustee must also have been appointed in an open and transparent process.
NEST is excluded from these requirements and there are adjustments for schemes with a corporate trustee.
Comment
The requirements, highlighted in draft form in Pensions Bulletin 2014/44, affect not only Master Trusts but also occupational schemes with unconnected employers. Fortunately most trustees count as “non-affiliated”, but for those concerned that they might be affected legal advice may be necessary.
“Essential guide” to communicating with members about pension flexibilities finalised
The Pensions Regulator has published in final form its guide for occupational pension scheme trustees and managers to communicating the new pension freedoms to members. It is aimed at schemes that provide flexible benefits.
To all intents and purposes it is the same document as published in draft last month (see Pensions Bulletin 2015/11). Usefully, the guide now links to the new Money Advice Service leaflet “Your pension: it's time to choose“ which occupational pension schemes that provide flexible benefits are expected to include in their retirement communications, unless they wish to issue their own statement containing materially the same information.
Tax and benefits – IFS says that politicians have little sense of direction
In a forthright report on the three main political parties’ tax and benefit proposals for the next Parliament, the Institute for Fiscal Studies finds substantial failings in all their offerings. “Lack of willingness to be clear about the details”, “inability to resist the urge for piecemeal changes which would make the overall system less efficient and coherent” and “little evidence of any coherent strategy” are just three withering criticisms levelled at the Conservatives, Labour and Liberal Democrats.
When it comes to pension tax, the Conservative and Labour proposals to raise more money by reducing tax relief on pension contributions for the highest earners are slated as harming the coherence of the pension taxation system and not improving those parts which need changing. For the IFS, if the system of pension taxation is to be made less generous then it would be better to tackle the two elements of the system that look generous relative to the benchmark of taxing pension income when it is received, rather than when it is paid in or accrued. These are the ability to take one quarter of an accumulated pension tax-free and employer contributions being free of NICs.
Investment managers set down standards
The Investment Association, the UK trade body for investment managers, has outlined service standards that UK investment managers are invited to meet in a Statement of Principles. The principles cover areas such as client interests, adding value, client communication and their approach to stewardship. There is also a principle stating that fee structures should be simple and understandable with all costs disclosed in a transparent manner.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
