Out-Law / Your Daily Need-To-Know

Out-Law News 3 min. read

Latest Ombudsman decision involving suspected pension liberation will be welcomed by providers, says expert


Two pension providers that allowed historical transfers from their own schemes to a scheme later suspected of being involved in a pension 'liberation' scam did not breach any duties to their customer when they did so, the Pensions Ombudsman has said.

Pensions litigation expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said that the news would be welcomed by other providers that had allowed transfers to schemes later suspected of being scams before regulators began issuing guidance and awareness-raising materials about the practice. However, he said that the Ombudsman's approach to these cases appeared "at odds" to recent determinations involving complaints against providers that had refused to make transfers to suspect schemes.

Ombudsman Tony King rejected claims against providers Legal and General and Scottish Widows brought by Joseph Winning, who had held self-invested personal pensions (SIPPs) with both of them. In late 2012, Winning had asked the providers to transfer his savings into a now-discredited scheme known as the Capita Oak Pension Scheme. He then argued that they should have carried out greater due diligence on the receiving scheme, and should then have refused to make the transfers.

In February 2013, the Pensions Regulator issued its first guidance about the risks presented by so-called 'pension liberation' schemes to pension savings. Fairhead said that this guidance, which was later re-cast as guidance warning against 'pension scams', was a turning point in industry good practice.

"It is fair to say that awareness of the proliferation of schemes offering pension liberation was much more limited back in 2012, even within the pensions industry, compared to now," he said.

"These determinations also suggest that the Ombudsman might well take a harder line with providers who allowed transfers to be made after February 2013, although we will have to wait for more decisions to see quite how he deals with those situations. The liberation-related determinations of the past few months are generally showing up what a difficult tightrope the Ombudsman is having to walk against the background of a legal position that is not ideally suited to dealing with these types of tricky transfer questions," he said.

Pension scheme rules prevent an individual from claiming pension benefits until they reach the age of 55, unless doing so on ill-health grounds. 'Unauthorised payments' from pension schemes can be subject to a tax charge of as much as 55% of the value of the payment. Pension liberation arrangements market themselves as a means of giving pension scheme members access to their savings before they reach retirement age, but can put members' savings at risk.

The Capita Oak Pension Scheme is the subject of a number of claims that have been referred to the Pensions Ombudsman, who has legal powers to settle disputes between pension savers and their pension providers. Members of the scheme have been unable to obtain information about their assets, other than that they may be invested in storage pods with a company called Store First Ltd. In December 2014, the Ombudsman ruled in favour of a 'Mr X', who had requested to transfer out of the Capita Oak scheme but had not received a response from the scheme's trustees.

At the time that Winning requested his pension providers transfer a combined £50,000 of assets into the Capita Oak scheme, the scheme was a registered as a pension scheme with HM Revenue and Customs (HMRC). Although the Ombudsman said he had "great sympathy" for Winning, there was no "administrative failure" by the providers as they had a statutory obligation to make the requested transfer.

Guidance in relation to Capita Oak on the Ombudsman's website has since been updated to reflect the outcome of the Winning case, stating that individuals whose assets were transferred to Capita Oak would have to exhaust their providers' complaint procedures before their case could be heard by the Ombudsman. In order for their complaints to succeed, they would also have to be able to explain why their case was "significantly different" to Winning's.

However, Fairhead said that the Ombudsman's approach in this case "seemed to be at odds" with his stance in January, when considering three complaints against providers that had refused to make the transfers requested. Although he ruled in favour of the providers as the intended receiving schemes were not 'occupational pension schemes', he also criticised them for not conducting appropriate due diligence before refusing the requests.

"When looking at those cases, the Ombudsman took a forensic look at whether the receiving schemes were occupational pension schemes; but in these determinations he has simply referred to the Capita Oak scheme 'purporting' to be an occupational pension scheme," Fairhead said. "There is no suggestion here that the Ombudsman considered scheme documentation or membership criteria."

"It would be interesting to know how the Ombudsman would have approached the matter had these been complaints by an individual who had been prevented from transferring into the Capita Oak scheme. Presumably, he would have looked more closely at the status of the scheme to determine whether there was a legal right to transfer," he said.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.