Trustees are being warned to prepare robust exit contracts to prevent members claiming future benefits if a pension transfer is deemed a scam.
The position of trustees in pensions liberation cases are uncertain. Trustees are under a legal obligation to complete transfer requests and could face penalties if the process is delayed.
Recommendations to help prevent pensions liberation
A change to regulation to give trustees the right to block suspect transfers
Introduction of a safe harbour for trustees, called for by the ombudsman
Creation of a 'white list' of schemes by the Pensions Regulator and HM Revenue & Customs
Development of an acknowledged industry standard code of practice
Matthew Swynnerton, partner at law firm DLA Piper, said it is important to only make transfers to valid occupational schemes because the mandatory discharge document signed by the member when completing a transfer could be deemed null further down the line.
“If it later turned out that it wasn’t [a valid scheme], then [the current scheme] wouldn’t benefit from the discharge. So it might be possible for that member to come back at a later date and claim they had some sort of entitlement to benefits from the schemes,” he said.
Trustees are trying to address these issues by implementing bespoke and robust frameworks.
However, beneficiaries are not covered by that event. “Even when that robust discharge is obtained by trustees, it is not in effect a solution,” Swynnerton said at a press briefing last week, adding: “There isn’t a good solution for this at the moment.”
The ombudsman's view
It is expected that the pensions ombudsman will rule against the trustees in several ongoing cases.
“The ombudsman will take a view against a trustee if [he or she] delays a transfer to a scheme that turns out to be a valid scheme,” said Margaret Snowdon, director at JLT Employee Benefits.
The member can sue the scheme for maladministration because they have suffered financial loss, which would then have to be repaid.
Snowdon said: “Trustees should have the discretion to block any transfer that is deemed suspect, however a member’s right to transfer is very important, so trustees must be able to prove beyond a reasonable doubt that a proposed transfer is suspicious in order to be blocked.”
She has asked the ombudsman to consider giving safe harbour to schemes that delay transfer while completing due diligence on the receiving schemes.
A spokesperson for the ombudsman said: "[It is] considering each case on [its] own merit."
There are currently 17 liberation cases under review with "determinations issued in due course which will most likely not be until the new year", the spokesperson added.
The amount of due diligence done by trustees on suspect schemes varies widely, with some going as far as checking the address of the receiving schemes on Google Earth.
Snowdon said pensions liberation has increased the workload of trustees by 10-20 per cent and has seen trustees pay out of their own pockets for legal advice, experts have said. “Some trustees are spending a lot of money investigating schemes,” she added.
