Decision highlights confusion in UK regulation of pension transfers involving overseas investments

It comes after a pensioner referred to as ‘Mr W’ sought financial compensation after the value of his pension transfer fell during a delay while he was required to seek a MoneyHelper safeguarding appointment to discuss the transaction. He argued that a trustee, who had caused the delay by raising an ‘amber flag’ over his transfer request, had not correctly interpreted the 2021 Occupational and Personal Pension Schemes (Conditions for Transfers).

But the ombudsman did not uphold the complaint, finding that the trustee had not acted unreasonably in determining that an amber flag was present in Mr W’s transfer request. In reaching the decision, the ombudsman noted the discrepancy between the Transfer Regulations and guidance issued by The Pensions Regulator (TPR).

While the regulations require trustees to raise amber flags over transfer requests that involve any overseas investments – including ones that carry a low risk of being a scam – the TPR’s guidance says trustees can grant a “discretionary transfer” for low-risk requests.

Ben Fairhead, pensions litigation expert at Pinsent Masons, said the decision highlighted the conundrum facing pension providers and their trustees. “The ombudsman focused on the reasonableness of the trustee’s decision – although the outcome also accords with the trustee applying the literal interpretation of the regulations,” he said.

“It is less clear what will happen when a transfer is not referred to MoneyHelper – despite the presence of an overseas investment in the receiving scheme – but where the trustee was following the regulator’s more pragmatic approach set out in its guidance. It is likely it will take longer to see complaints coming through where members claim to have lost out as a result of transfers that should have been referred for guidance,” Fairhead said.

He added: “The fact remains that the literal reading of the regulations leaves no room for doubt, but this conflicts with the guidance given by the regulator. We continue to await news from the Department for Work and Pensions (DWP) on prospective amendments to the regulations to address this disconnect. In the meantime, trustees will continue to have to navigate their way through transfer requests carefully, and the ombudsman is faced with some tricky decision-making too.”