Twelve months ago, we reported on a new initiative from The Pensions Regulator which aimed to tackle the growing problem of pension liberation fraud. In these schemes individuals are encouraged to transfer out their pension savings on the promise that the receiving scheme will allow them to access their savings before age 55 (but in fact the member will usually incur a substantial tax charge if they do so).
There have been a number of developments in this area in the past year, including consideration of the matter in the High Court and updated HMRC processes, in addition to the creation of an industry working group.
What has happened in the courts?
On 21 October 2013, the High Court issued a judgment concluding nine suspected pension liberation schemes were, on the construction of their governing documents, occupational pension schemes for the purposes of the statutory definition.
While this case is helpful in that it means TPR could use its regulatory powers in respect of these schemes, it does not help trustees of schemes other than the nine to which the court’s decision applies.
It should also be noted that the court was not asked to consider whether these schemes were shams, but it has been left open to TPR to contend this at a later point. Although no such action has yet been taken, the answer to this question may be of greater benefit to trustees in the future.
How has HMRC changed its processes?
On the same day the High Court judgment was released, HMRC announced two changes to its processes.
● HMRC updated its ‘process now, check later’ approach to scheme registration and will now review applications before deciding whether or not a new scheme should be registered.
● HMRC will now also respond to requests for the confirmation of the registration status of a proposed receiving scheme without seeking consent from the receiving scheme, and will only provide confirmation if the receiving scheme is registered and the information held by HMRC does not indicate a significant risk that the receiving scheme is involved with pension liberation.
Whilst the new registration procedure will help prevent new pension liberation arrangements being established, it will not deal with the schemes that have already been registered.
If HMRC states it cannot provide confirmation of a receiving scheme’s status, whilst it gives trustees some evidence to support a decision to block a transfer, it will still ultimately be for TPR to decide whether to take any action in respect of a blocked transfer. TPR has previously said evidence of suspected pension liberation will be a relevant factor to consider when deciding whether to take any action.
The Pensions Ombudsman is due to publish several determinations regarding complaints from members whose transfer requests were halted due to suspected liberation activity. The Ombudsman has not given a view, but it is hoped these determinations will provide guidance for trustees in resolving this issue.
Where does this leave trustees?
Trustees facing the dilemma of how to respond to a transfer request to a suspected liberation vehicle must take steps to protect themselves, including: (i) making checks on receiving schemes; (ii) providing information to members warning them of the risks of pension liberation (including TPR’s ‘scorpion pack’); (iii) keeping an audit trail to the extent that a transfer request is delayed; (iv) liaising with TPR where an extension is needed to address pension liberation concerns; and (v) if the member insists on the transfer, protecting trustees with a robust bespoke written discharge from the member.
This remains an imperfect solution and many trustees will continue to hope for a change in legislation.
How has the pensions industry responded?
The creation of the Pension Liberation Industry Group was announced in January. Headed by Margaret Snowdon OBE and with the support of TPR, the group aims to produce a code of practice for transfers between UK registered pension schemes. DLA Piper are part of the group and will provide input on the legal aspects of the code.
It is hoped the code will set the standard for administering transfer requests. The group will also explore a ‘safe harbour’ agreement for trustees and providers who follow the code, and consider ways of handling complaints and insistent customers.
Matthew Swynnerton is a partner in the employment group, DLA Piper