Facts of the case
The English High Court has recently ruled on a pension liberation case that could have far reaching consequences for the industry, reversing an earlier decision by the Pensions Ombudsman refusing to transfer a member’s pension pot.
The Royal London Mutual Insurance Society Ltd was the scheme administrator of a personal pension scheme (PPS) of which Ms Hughes was a member. She was also a member of an occupational pension scheme (OPS) under the Pension Schemes Act 1993 (the “1993 Act”), and had acquired the right to the cash equivalent of the accrued benefits under her PPS. She wrote to Royal London asking that it use the cash equivalent in order to acquire transfer credits allowed under the rules of her OPS.
Royal London declined her request, suspecting it to be an attempted pension liberation exercise. Further, it was not convinced that Ms Hughes was an “earner” under the definition of “transfer credits” under the 1993 Act. The result being that Ms Hughes was not able to acquire transfer credits under her OPS, nor could she take the cash equivalent of her accrued rights. Ms Hughes subsequently raised a case before the Pensions Ombudsman.
The Ombudsman’s decision
The Ombudsman held that in order to be “an earner” for the purpose of “transfer credits”, Ms Hughes had to be an earner in relation to a scheme employer in relation to the OPS. He took the view that she was not, and therefore was not entitled to a statutory transfer. He also held that Royal London had not acted improperly in refusing the transfer and the Ombudsman dismissed her complaint.
The High Court decision
Ms Hughes’ appeal to the High Court challenged the Ombudsman’s decision on the basis that he had misconstrued the definition of “transfer credits” and that she was “an earner” within the definition, despite her earnings not coming from a scheme employer in relation to the OPS. The court reviewed the established law and was satisfied that the word “earner” should be accorded its general meaning under the 1993 Act, which incorporates a definition from the Social Security Contributions and Benefits Act 1992 as being someone who enjoys remuneration or profit derived from an employment.
The Court was satisfied that Ms Hughes was an earner by virtue of her earnings from other sources, and that she was entitled to require Royal London to transfer the cash equivalent of her accrued rights under her PPS to obtain transfer credits in relation to her OPS.
Wider impact of decision
Pension liberation is a growing concern for the industry. This case emphasises the need for trustees to conduct necessary checks in order to establish whether or not there is a valid reason to refuse a request for a transfer by a member. If they are unable to find, having reviewed applicable laws, guidance and accepted practice, a reason to refuse the transfer then their duty is to make payment. This is an area where additional legislation would assist!