Landmark Pension Transfers Ruling

This month has seen a landmark High Court decision hit the news after Mr Justice Morgan ruled in favour of the complainant in the case of Hughes v Royal London. The case centred around Ms Hughes’ request to transfer her pension benefits from her Royal London Personal Pension Scheme (PPS) to a recently established SSAS. Royal London declined the transfer request expressing concerns about the possibility of pensions liberation.

Their reasons

They were of the opinion that Ms Hughes had no statutory right to transfer as they did not believe that Ms Hughes was an “earner” within the definition of “transfer credits” with the result that Ms Hughes could not acquire transfer credits under her SSAS and could not therefore take the cash equivalent of her accrued rights under her PPS. Royal London’s rationale behind this decision was that the Sponsoring Employer of the SSAS was a dormant company through which Ms Hughes was receiving no remuneration. Justice Morgan however ruled – and this is the important bit – that the use of “earner” in legislation was in relation to any source or sources and was not strictly limited to the Sponsoring Employer of the SSAS.

Implications of the ruling

In short, the ruling has confirmed that members of Occupational Pension Schemes need not be, nor have ever been, employed by the Sponsoring Employer of the scheme as long as the scheme rules permit membership on this basis and as long as they are receiving or have received earnings of some sort from any source.

Mixed Feelings from the industry

The High Court decision has been met with mixed feelings across the industry. As always it is the large life companies which shout the loudest and whilst there is merit to their concerns that this decision will aide unscrupulous pensions liberation schemes and removing this ‘test’ makes it difficult for them to genuinely prevent a transfer where they have concerns, one has to question whether their fears are truly altruistic. It has become increasingly common to see the larger life companies hiding behind the front of pensions liberation as an excuse to reject genuine transfer requests and hold on to existing business and their ongoing fees.

Perhaps of more importance is the view of leading pension lawyers and financial advisers. The camp here seems to be split between those who are of the opinion that the decision is incorrect due to liberation concerns and those that feel that the law was finally interpreted correctly and that liberation needs to be addressed in a different way. The latter are keen to stress that just because a SSAS is newly established or may be investing in non-standard investments this does not mean it is being used for pensions liberation and insurance providers should never assume to know the whole position of a client. Choosing an alternative investment may be part of a much diversified portfolio that clients and their advisers have agreed upon.

AMPS members have been discussing the decision on their forum, which has also had mixed reviews. But what is evidently clear from all posts and discussions, is that everyone wants to know how to tackle liberation and that more work in this area is definitely required. Member firms have offered their own opinions and incidentally the majority approach seems to be leaning towards wanting a ‘white list’ of approved Scheme Administrators or the return of the dreaded ‘permissible investment list’.

What next?

The Pensions Ombudsman have made it clear that providers are no longer able to reject transfer requests of this nature. Until there is more action from the regulators the only recourse available to providers and the industry to help protect clients is education. It is therefore important, more so now than ever, to ensure that clients are fully aware of the risks involved with pension scams and the potentially huge tax consequences these may have on both their pensions and themselves personally.

As a pure bespoke SSAS provider this ruling is positive news. The cost to fight transfers from larger insurance firms is expensive work and now that the insurers can’t act this way it will enable us to keep our fees low, which ultimately benefits our clients. On the flip side we sympathise with providers who are now unsure how to combat pension scams and we urge the industry to find a solution that works. Whether this be a ‘white label’ of trusted providers, or the industry tackling the actual source of the scams (the ‘investment’ providers) it remains to be seen, but they need to move quickly on this so that parties like us, who work hard for our clients, can actually focus on the clients instead of fighting with providers to release client transfers.

This month has seen a landmark High Court decision hit the news after Mr Justice Morgan ruled in favour of the complainant in the case of Hughes v Royal London. The case centred around Ms Hughes’ request to transfer her pension benefits from her Royal London Personal Pension Scheme (PPS) to a recently established SSAS. Royal London declined the transfer request expressing concerns about the possibility of pensions liberation.

Their reasons

They were of the opinion that Ms Hughes had no statutory right to transfer as they did not believe that Ms Hughes was an “earner” within the definition of “transfer credits” with the result that Ms Hughes could not acquire transfer credits under her SSAS and could not therefore take the cash equivalent of her accrued rights under her PPS. Royal London’s rationale behind this decision was that the Sponsoring Employer of the SSAS was a dormant company through which Ms Hughes was receiving no remuneration. Justice Morgan however ruled – and this is the important bit – that the use of “earner” in legislation was in relation to any source or sources and was not strictly limited to the Sponsoring Employer of the SSAS.

Implications of the ruling

In short, the ruling has confirmed that members of Occupational Pension Schemes need not be, nor have ever been, employed by the Sponsoring Employer of the scheme as long as the scheme rules permit membership on this basis and as long as they are receiving or have received earnings of some sort from any source.

Mixed Feelings from the industry

The High Court decision has been met with mixed feelings across the industry. As always it is the large life companies which shout the loudest and whilst there is merit to their concerns that this decision will aide unscrupulous pensions liberation schemes and removing this ‘test’ makes it difficult for them to genuinely prevent a transfer where they have concerns, one has to question whether their fears are truly altruistic. It has become increasingly common to see the larger life companies hiding behind the front of pensions liberation as an excuse to reject genuine transfer requests and hold on to existing business and their ongoing fees.

Perhaps of more importance is the view of leading pension lawyers and financial advisers. The camp here seems to be split between those who are of the opinion that the decision is incorrect due to liberation concerns and those that feel that the law was finally interpreted correctly and that liberation needs to be addressed in a different way. The latter are keen to stress that just because a SSAS is newly established or may be investing in non-standard investments this does not mean it is being used for pensions liberation and insurance providers should never assume to know the whole position of a client. Choosing an alternative investment may be part of a much diversified portfolio that clients and their advisers have agreed upon.

AMPS members have been discussing the decision on their forum, which has also had mixed reviews. But what is evidently clear from all posts and discussions, is that everyone wants to know how to tackle liberation and that more work in this area is definitely required. Member firms have offered their own opinions and incidentally the majority approach seems to be leaning towards wanting a ‘white list’ of approved Scheme Administrators or the return of the dreaded ‘permissible investment list’.

What next?

The Pensions Ombudsman have made it clear that providers are no longer able to reject transfer requests of this nature. Until there is more action from the regulators the only recourse available to providers and the industry to help protect clients is education. It is therefore important, more so now than ever, to ensure that clients are fully aware of the risks involved with pension scams and the potentially huge tax consequences these may have on both their pensions and themselves personally.

As a pure bespoke SSAS provider this ruling is positive news. The cost to fight transfers from larger insurance firms is expensive work and now that the insurers can’t act this way it will enable us to keep our fees low, which ultimately benefits our clients. On the flip side we sympathise with providers who are now unsure how to combat pension scams and we urge the industry to find a solution that works. Whether this be a ‘white label’ of trusted providers, or the industry tackling the actual source of the scams (the ‘investment’ providers) it remains to be seen, but they need to move quickly on this so that parties like us, who work hard for our clients, can actually focus on the clients instead of fighting with providers to release client transfers.

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