Ombudsman suggests that one month is enough time to finalise a DC transfer
A recently published decision made by the Pensions Ombudsman suggests that, in response to a valid transfer request, trustees of occupational DC schemes might only have a month from receiving the necessary information from the new provider to disinvest and pay over a transfer value.
Mr Pollet was a member of the Optimum Internal Pension Plan. He complained that Optimum Capital Limited (OCL) (which acted as both principal employer and trustee of the Plan) failed to process his transfer request which consequently caused him a financial loss. The complaint was upheld because OCL should have made the transfer in reasonable time after receiving a completed discharge form.
The Plan seems to have had something of a chequered history, including directors of its administrators being jailed for pension tax fraud.
Despite attempts to rectify matters OCL claimed not to be in a position to comply with Mr Pollet’s request to transfer to a self-invested personal pension plan without him signing a wide-ranging disclaimer form (as opposed to a standard form of discharge) indemnifying OCL from all legal liability. Mr Pollet declined to sign this and the Ombudsman agreed that the transfer could not be made subject to him signing.
The Ombudsman said that his view was “… that one month from [the date the discharge form was received] would have been reasonable time to disinvest Mr Pollet’s holdings… and then make the payment …”.
The Ombudsman directed that, as well as paying £500 to Mr Pollet for distress and inconvenience, OCL must make good any investment loss in the receiving scheme caused by the delay. He did, however, decline to direct OCL to pay the costs (£2,500) of Mr Pollet’s financial adviser for handling the complaint on his behalf.
Comment
This is a sorry tale and the outcome of the Ombudsman complaint is unsurprising. What has attracted some press comment though is the statement that a month is a reasonable time to disinvest and pay out having received the necessary paperwork. As the Ombudsman himself notes the statutory deadline for making a transfer is six months from the date of the member’s request.
It may be true in well-run DC schemes that a month should normally be reasonable and we understand why the Ombudsman had to set a benchmark to measure the quantum of loss occasioned by the delay. We do hope that this is not misinterpreted so that it becomes a de facto deadline as there may be legitimate grounds for delay such as concerns about pension scams.
Seven months left to review employer surplus refund provisions
Occupational pension schemes could lose the ability to pay refunds of surplus to sponsoring employers if, by 6 April 2016, their trustees have not passed a resolution confirming that such payments are allowed, possibly with conditions attached.
On 6 April 2006 the law governing refunds of surplus changed, becoming dependent on scheme rules. To assist schemes, a transitional power was set out in Section 251 of the Pensions Act 2004, which could have required trustees to pass a resolution in relation to their refund of surplus powers by 6 April 2011. If such a resolution was not passed by then, the trustees may have been unable to refund surplus to the employer from an ongoing scheme.
After lobbying from pension specialists, the Government made a number of adjustments to Section 251, including extending the deadline for producing a resolution to 6 April 2016 (see Pensions Bulletin 2011/47). With the revised deadline now nearing, those who put the issue on the backburner should be asking their legal advisers whether a resolution is needed.
Comment
Whilst it is the trustees who make the resolution the sponsoring employers have most to lose. Employers may therefore wish to check whether their scheme’s trustees have completed any necessary tasks to allow future refunds of surplus.
Unfunded public service DB scheme transfer loophole closed
The Government has closed a loophole of its own making that enabled members of unfunded public service DB schemes to access the new DC flexibilities by transferring their benefits to a qualifying recognised overseas pension scheme (QROPS). The regulations come into force on 7 September, but have no effect on those who make a valid application to transfer to a QROPS before this date.
The Unfunded Public Service Defined Benefits Schemes (Transfers) Regulations 2015 (SI 2015/1614) proved to be necessary because April’s restrictions imposed on transferring from unfunded public service DB schemes contained a proviso that until regulations were made in this area, existing legislation and the regulations made under it would continue to operate – and these enabled transfers to QROPS, which typically provide money purchase benefits, to continue.
The new regulations close this loophole by requiring that if the transfer is to an overseas arrangement it must be to a QROPS that cannot provide flexible benefits and is subject to current limitations in relation to section 9(2B) rights.
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.
