No decision due on pension liberation cases before autumn, says Pensions Ombudsman

Out-Law News | 22 Aug 2014 | 5:21 pm | 2 min. read

The Pensions Ombudsman is "not yet in a position to publish" its conclusions on at least 84 pension liberation complaints that have been eagerly anticipated by the UK pensions industry, according to its latest update.

The watchdog, which is responsible for investigating complaints about UK pensions, said that "very careful consideration" and requests for additional information of both the transferring and receiving schemes had been needed in the majority of cases currently under investigation. It said that it expected to be able to publish its decisions in the autumn.

Pension liberation expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said that confirmation of the ongoing delays would disappoint those in the industry currently being faces with the "difficult question as to whether to effect transfers to suspected liberation schemes".

"The industry is hoping for a clear steer from the ombudsman," he said.

"It is difficult to speculate as to the precise reasons for the further delay, but it probably reflects the complex 'tightrope' decision the ombudsman is faced with given the strict legal requirements placed on trustees to proceed with transfers - something the 'scammers' behind liberation schemes have played on. This, however, goes against the clear message from the Pensions Regulator about the dangers of pension liberation and its clear desire to stop monies pouring into these schemes," he said.

Under rules governing pension schemes, an individual can only claim pension benefits from the age of 55 unless doing so on ill-health grounds. Tax charges on unauthorised payments can be as much as 55% of the value of the payment. A pension liberation arrangement is designed to get around these restrictions by transferring money representing a saver's pension rights out of their existing scheme into a new scheme, which is often of an exotic, unregulated structure and based offshore, and then making the money available wholly or partly as a cash loan back to the saver.

The 1993 Pension Scheme Act gives pension scheme members the right to transfer pension savings to another registered pension scheme or qualifying recognised overseas pension scheme (QROPS), and requires the original pension provider to make any transfer within six months of the request being made. According to press reports, many of the cases outstanding with the ombudsman involve private pension providers that have refused to carry out a requested transfer due to suspicions that the funds are being transferred to a pension liberation scheme.

Changes introduced as part of this year's Budget gave HM Revenue and Customs (HMRC) more power to refuse to register a pension scheme or to deregister an existing scheme if it believes that the scheme has not been set up and maintained for the main purpose of providing authorised pension benefits. From 1 September, scheme administrators will also have to meet a 'fit and proper person' test before the scheme can become or stay registered. Previously, HMRC was only able to refuse to register a scheme that provided incorrect or false information, and was only able to deregister schemes in limited circumstances.

"I sense that the pendulum has shifted somewhat over the last 18 months or so in relation to how pension liberation is perceived by the industry, with providers increasingly likely to err on the side of caution and not proceeding with a transfer where they have suspicions," said pension liberation expert Ben Fairhead. "The danger is that the pendulum might swing back if the ombudsman concludes that the failure to comply with the legal obligation to make the transfers amounts to maladministration."

"The industry will have to continue to await the decisions with interest and, in the meantime, those faced with particularly tricky dilemmas about transfers might have to seek extensions of time from the Pensions Regulator and seek specific guidance from their legal advisers," he said.