Providers, trustees, managers and administrators are in a “highly unenviable position” on pension transfers and the strength of their reputation is “at risk”, the Pensions Ombudsman has said.
Three landmark pension liberation decisions published today (9 January) found that several providers were right to not transfer to pension liberators due to regulations in occupational pension law.
The decisions will be seen as backing a tougher stance by providers, who had feared being penalised for refusing requests to apparently registered schemes.
Tony King, the outgoing pensions ombudsman, said the problem for providers and administrators is they must decide between complying with what might have initially seemed a legitimate transfer request, delaying the transfer, making further investigations, and potentially refusing it.
“If they comply with the transfer request, they are at risk of having made an unauthorised payment, with potential tax consequences. If they delay or refuse they are at risk of the member seeking to enforce the statutory right and succeeding, possibly claiming a financial loss.
“The strength of their reputation as an effective guardian of their customer’s money is also at risk.”
He added that a regulator, or “other source of intelligence”, indicating that a transfer may be for pension liberation purposes, may be “good reason for delaying the transfer and asking relevant questions during the statutory period [of six months] allowed for the transfer”.
Mr King said those questions may result in the application being withdrawn – and where they do, that may be the “right” outcome, as long as the scheme member has not been misled or unfairly pressurised.
However, he warned that there is no direct link between a transfer being for pension liberation purposes and it not being a recognised transfer, or there being no statutory right to the transfer.
“Strictly they can only refuse to make the transfer beyond the end of the statutory period if there is no statutory right to it,” he said.
In two of the three cases in question, the firms were able to refuse to transfer because of a provision in occupational pensions legislation which only obliges transfers to other workplace schemes.
He added: “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.”
Adrian Boulding, pensions strategy director at Legal and General, previously told FTAdviser that providers could find themselves facing a no-win situation as investors may have claims whether a transfer goes ahead or not.
“After six months the position is grey. We are caught between a rock and a hard place – if you don’t pay the transfer, they may have a claim, if we do pay the transfer, they may have a claim against us.”
donia.o’loughlin@ft.com
