The Pensions Ombudsman (TPO) recently published its first determination under the pension transfer regulations which were introduced in November 2021. This determination offers welcome guidance on the approach TPO is likely to take to complaints made under the new regulations.
TPO considered when trustees can reasonably consider that an overseas transfer amber flag applies. Although TPO determinations have no precedent status and every case turns on its own specific facts, this determination will be reassuring for trustees who require members to seek pension safeguarding guidance through an appointment with MoneyHelper before proceeding with a transfer request.
On 30 November 2021 (following lengthy consultation with industry stakeholders), new transfer regulations came into force (The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (the "Transfer Regulations")). The purpose of the Transfer Regulations is to protect individual savers from pensions scams and to empower trustees to help them in the fight against pension fraud. The Transfer Regulations introduced a new "flag" system.
Under the new Transfer Regulations, a transfer can now only proceed if one of two conditions are fulfilled:
- Is the transfer to a certain type of 'safe' scheme (which did not apply in this case)?
- Has the trustee identified if there are any red or amber flags present with the transfer?
A red flag means the transfer cannot proceed. An amber flag requires guidance to be obtained by the member from MoneyHelper through a free 'Pension Safeguarding Guidance' appointment before the transfer can proceed.
An amber flag may be present if the trustees of the transferring scheme decide that there are any overseas investments in the receiving scheme. The effect of this may have been broader than intended and, taking a literal interpretation, might capture almost all transfer requests given that most schemes include overseas investments in their portfolios.
The Pensions Regulator's (TPR) guidance for trustees on "Dealing with transfer requests" clarifies that "the specific concern here is not whether the investment is in a global equity fund but whether the investment is in assets or funds where there is a lax or non-existent regulatory environment or in jurisdictions which allow opaque corporate structures."
TPO acknowledged this and noted that, in the absence of any change to the Transfer Regulations, there are different approaches as to how trustees might interpret this guidance.
The determination of Mr W, Western Power Distribution Pension Fund and The Western Power Pension Trustee Limited (CAS-93568-H0D0) was published on 23 October 2023.
As part of its due diligence on Mr W's transfer request, the trustee sent him a questionnaire asking if the transferred funds would be invested overseas, to which Mr W replied that 'Global Funds' would be used. Accordingly, the trustee found that, upon a literal interpretation of the Transfer Regulations, an amber flag was present with Mr W's proposed transfer because there were 'overseas investments' in the receiving scheme.
Mr W's financial adviser also provided information to the trustee explaining that the receiving scheme, a UK pension scheme registered with HMRC, comprised various funds, including one with a policy that stated it "primarily invests in shares of smaller companies from developed countries around the world". Mr W's position was that the receiving scheme was administered and funds were invested by entities authorised and regulated by the Financial Conduct Authority, and that while the funds may contain shares within companies which are based overseas, the investments are made in the UK, by a regulated pension scheme, which will not hold overseas assets.
The trustee recognised the debate in the pensions industry over how the Transfer Regulations should be interpreted in relation to overseas investments, but did not consider that obligations under these regulations fell away because the receiving scheme was UK-based or UK-registered. Given the amber flag, in order to process the transfer, the trustee required the member to obtain the safeguarding guidance and, at that time, appointments with MoneyHelper were available within the next couple of weeks. Mr W and his adviser complained to the trustee, disagreeing with the need for an appointment. The trustee also sought legal advice, which confirmed a referral to MoneyHelper was required. Mr W's appointment subsequently took place around a month after the Trustee first referred him to MoneyHelper with the guidance received and a transfer was made..
Mr W asserted that his transfer had been unnecessarily delayed on account of the trustee requiring the appointment with MoneyHelper to be made and its guidance to be received. He sought compensation for the reduction in his transfer value over the period from when he thought the transfer should have been processed and when it ultimately occurred, as well as a payment in recognition of the distress and inconvenience caused..
What did TPO decide?
TPO determined follows:
- The trustee of the transferring scheme was entitled to decide whether there were overseas investments in the receiving scheme.
- Taking a literal interpretation of the Transfer Regulations that there were overseas investments present, it was not unreasonable of the trustee to require Mr W to obtain guidance from MoneyHelper.
- There was no adverse finding in respect of the trustee's performance of its duties having regard to the information provided to the trustee and given that the trustee sought legal advice.
- Although Mr W's transfer value went down in value, TPO noted that transfer values do fluctuate up and down over time and the value of an investment in a receiving scheme can also change in value.
- Accordingly, the Pensions Ombudsman did not consider that any action by the trustee had caused an unreasonable delay to the transfer or equated to maladministration.
- For trustees grappling with whether amber flags are present, this determination is helpful.
- TPO has recognised that sometimes the Transfer Regulations do not neatly align with the practical reality of a situation.
- If trustees reasonably conclude that an overseas investments amber flag applies, the determination suggests they will be safe from allegations of maladministration and causing unreasonable delay if they insist that the member seeks pension safeguarding guidance through an appointment with MoneyHelper before proceeding with a transfer request.
- Trustees protect themselves against adverse findings in the performance of their duties if they obtain and act on legal advice on such matters.
To discuss any of the points raised in this article, please contact Josh Sheppard.