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'Employment link' pension transfer cases dropped following Hughes decision, ombudsman confirms


A number of cases against pension providers that have refused to proceed with transfers into schemes with suspected connections to pension liberation have been dropped following a major court decision last year, the Pensions Ombudsman has confirmed.

Anthony Arter said that there was "no longer any necessity for the complaints to be formally determined by the Pensions Ombudsman" after the February 2016 decision, in which the High Court ruled that a saver did not need to demonstrate a 'genuine employment link' with the receiving scheme before a transfer could go ahead.

Many of the applicants in the dismissed cases had "since liaised with their trustees or administrators to pursue, or in some instances withdraw, their transfer requests", according to the ombudsman.

The government has proposed limiting the statutory right to transfer pension savings into another occupational scheme to cases where a 'genuine employment link' with the receiving scheme exists, as part of a wide-ranging consultation into potential ways of protecting pension scheme members from scams.

Pension scams expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said that Arter's comments "confirms the fears expressed around the time of [the Hughes] decision that providers and trustees would feel their hands were tied even if suspicious about the types of schemes members were looking to transfer into".

"There had been some speculation about the outcome of the numerous complaints lined up before the ombudsman pending the Hughes decision, and it does sound like the majority have fallen away – presumably with most of the previously-suspended transfers going ahead absent the need for an earnings link between the transferring member and the receiving scheme," he said.

"Since the government's consultation was launched, there does seem to be an increasing consensus within the industry – or at least resignation to accepting – that an earnings link should be introduced as a specific required element of the test for a statutory right to a transfer. What will be interesting, though, will be seeing precisely how that earnings link is formulated, given it will need to be sufficiently robust to avoid it becoming a benchmark or a fresh target for fraudsters. Equally, it needs to be clear enough in terms of parameters to avoid it simply becoming an area for a fresh form of debate and uncertainty for those grappling with transfer requests," he said.

Current legislation gives pension schemes limited scope to refuse a statutory transfer request to a scheme which looks like a scam. Before the High Court's decision in the Hughes case, it was common for providers to request proof of an earnings relationship between the scheme member and the potential receiving scheme, giving them legitimate grounds on which to justify a refusal to transfer into a scheme they suspected was a scam where this could not be provided.

In its consultation on pension scams, published last year, the government proposed the introduction of a 'genuine employment link' test, which would require "evidence of regular earnings from that employment and confirmation that the employer has agreed to participate in the receiving scheme". Originating schemes would not have to seek this information if the transfer was to a personal pension scheme operated by an FCA-authorised entity or to an authorised master trust, and would still be able to use their discretion to allow a transfer in accordance with the scheme rules where the test was not met.

The government has also proposed an outright ban on cold calling related to pensions, to be introduced through primary legislation; as well as new registration requirements for small self-administered schemes and other single-member occupational pension schemes. The consultation closes on 13 February.

'Cold calls' related to pensions are increasing according to new research by insurer Phoenix Group, published this week. Over a quarter of adults surveyed by the company reported they had been contacted about a pension 'review' or releasing cash from their pension, up from 22% the previous year; while two thirds of those that had been contacted said it had happened in the last six months.

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