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The Pension Ombudsman has ruled on pension transfers in respect of 3 cases involving potential pension liberation. In summary, the PO gave notice that the pension transfer companies can only block a pension transfer if the member does not have a statutory right to a pension transfer.
Whilst the new introduction of fit and proper persons test has blocked many of the rogue SSAS operators in this area, there remains lack of clarity in the Industry. A common approach to giving clients control of their pension affairs on one level must be welcomed, but on another ensuring that the scheme they are joining or setting up is correctly constituted is also an important factor.
How does an insurance company rely of the block of refusing a transfer request?
Aviva – “If we allow ourselves to be duped into transferring our policyholders’ money to people who then steal it, we are risking being used for the purposes of financial crime.”
Aviva’s regulatory obligation extended to “preventing a policyholder from putting them where they wished, was a risk that the policyholder was at risk of misappropriation of investment or the SSAS client spending the money transferred before retirement”.
Standard Life “We do not regard the existence of a statutory right to be pivotal to the decision whether to allow or refuse a transfer. Many pension liberation vehicles ostensibly meet the legislative requirements; that is they appear to meet the definition of an occupational pension scheme and they are registered with HMRC”.
If we were to take the passive approach of allowing all transfers to schemes that meet the legislative requirements without carrying out further diligence they would be exposing many more customers to fraudulent pension liberation and/or adverse tax consequences. We would also not be acting in accordance with the wishes of the Pensions Regulator (whose guidance is relevant to personal pension schemes), HMRC and the FCA”.
What is a statutory right to a pension transfer?
In summary, they are for acquiring “transfer credits” in an occupational pension scheme (OPS); or for acquiring rights under a personal pension scheme.
What are transfer credits?
Transfer credits means rights allowed to an earner under the rules of an occupational pension scheme by reference to a transfer to that scheme of his accrued rights from another scheme.
What is an occupational pension scheme?
The definition was clarified in a court judgement last year and in a nutshell it is a pension scheme set out to provide benefit to people in employment service, or in respect of other people that it is capable of providing pension benefits for.
Where a person in an employment is an office holder ie a director or company secretary, then their employer will be taken to be the person responsible for paying them and they therefore qualify as being eligible to join a pension scheme.
Earnings mean earnings includes any remuneration or profit derived from an employment.
The decision on the statutory right to a transfer?
Although there is nothing in the legislation that expressly states that a member’s status as an earner had to be in relation to the same scheme employer, the PO find’s that it did.
If a member was not an earner in relation to a Scheme the PO considers that the statutory right falls away, and it therefore leaves it on a discretionary level.
He quotes ““ It would be a very strange result if people not in “employments of a description” who were earners in some other context (with earnings, however small or irregular, from some completely unconnected enterprise) could require a transfer value to be paid to the scheme. It would give the reference to “earner” arbitrary consequences if it just means a person with any earnings from any source.
As he had no relevant earnings he was not an earner and so his request for a cash equivalent transfer value was not for securing transfer credits. He had no statutory right to take a cash equivalent transfer value.
The PO does further state that the lack of earnings could, perhaps, have been easily altered (though not by payment of a nominal sum and/or a payment not in exchange for work). In summary, the PO has stated that providers, trustees, managers and administrators are advised that they can only “refuse to make the transfer beyond the end of the statutory period if there is no statutory right to it”. Where they find that there is no right to transfer they should be expected to be able to justify that to the person asserting the right.