A High Court ruling has “hamstrung” pension providers who block transfers if they think the receiving scheme looks suspicious, a lawyer has claimed.
The ruling in the case of Hughes v Royal London centred on a pension transfer request made in 2014 to a new scheme.
Royal London refused the request because of concerns about the status of the scheme and Donna-Marie Hughes’ right to transfer her pension into it.
Ms Hughes contested the decision by complaining to the Pensions Ombudsman who found in favour of Royal London but she has now successfully appealed the decision in the High Court.
Speaking after the decision Ben Fairhead, lead legal adviser to Royal London and pensions litigation partner at Pinsent Masons, said the ruling would have far-reaching consequences.
He said: “It will now be far easier for individuals to move their money from legitimate schemes, ultimately leading to a potential influx of money into suspicious schemes, as the hands of those being asked to make transfers are increasingly tied by the inflexibility of the law.
“This decision lays bare the problems facing pensions providers and trustees grappling with the rise of such fraudulent activity.
“They are effectively tasked by The Pensions Regulator and the FCA with trying to prevent pension funds disappearing into scams.
“Yet they will be increasingly hamstrung without a legitimate legal basis for declining to make the transfers that ultimately enable the fraud to take place.”
Ms Hughes complained to the ombudsman after Royal London refused to transfer her £8,359.71 Royal London personal pension to the Babbacombe Road 1973 Limited Ssas.
The transfer application and accompanying paperwork was submitted by Bespoke Pension Services Ltd, who acted on behalf of Ms Hughes.
The decision flagged up that Babbacombe is not trading at present, Ms Hughes was the only individual employed and does not currently receive a salary from the company.
Ms Hughes indicated in her transfer request she had originally been contacted by UK promoter First Review Pension Services as she had expressed an interest in transferring her pension funds into a Ssas through which she could invest in places such as Cape Verde and First Review had introduced her to Bespoke.
According to Royal London, Miss Hughes was cold-called.
Until the ruling it was common for a pensions provider to request proof of an earnings relationship between the individual and the provider for the potential new scheme.
In the majority of circumstances most dubious schemes can’t satisfy this criteria, giving providers grounds to refuse transfers where they had reservations about individuals opening themselves up to potential scams but the judgment has removed that obstacle.
A Royal London spokesman said: “We take transfer requests very seriously and look out for the warning signs highlighted by the regulators and relevant guidance.