Court decision changes pension members' rights to a transfer

25 February 2016

With thanks to law firm Pinsent Masons for the following summary:

There has been a recent change to members' transfer rights. The high court has overturned the approach taken by the Pensions Ombudsman. Trustees now need to review how they handle transfer requests, and revisit past transfer requests they have turned down. The Ombudsman has around 200 live cases to consider.

The background

Trustees have been doing their best to combat pension scams. On receipt of a transfer request, they have been undertaking due diligence in line with the industry code of practice and acting appropriately when warning signs emerge. In many cases, they have refused to process the transfer. Last year, the Ombudsman identified a legal basis for declining a transfer. He ruled that a member had a statutory right to transfer to an occupational pension scheme only if he or she was receiving remuneration from an employer participating in that scheme. This posed an additional hurdle for the pension scammers: it required them to establish some form of employment relationship between the member and a scheme employer.

What has happened now?

The high court (in a case in which we acted for the pension provider) disagreed with the Ombudsman. It decided that the statutory right to transfer to an occupational pension scheme does still require the member to be receiving remuneration, but the source of that remuneration is irrelevant. This removes an obstacle in the path of pension scammers: they no longer need to create and document an employment relationship with a scheme employer.

What does this mean for trustees?

If you are a trustee, you should now review the processes you have put in place for dealing with transfer requests. You may have refused a transfer on the basis that the member was not receiving remuneration from a participating employer. You will now need to revisit that refusal. The Ombudsman has acknowledged that the court decision may prevent trustees from processing a transfer "even if they have significant concerns that it may be for the purposes of pension liberation".

This ruling only affects members' statutory rights to a transfer. Some scheme rules may give trustees discretion (or even force them) to make a transfer where the member has no statutory right.