Pension liberation: The Pensions Ombudsman breaks silence

The Pensions Ombudsman recently published long awaited determinations in relation to complaints about transfers thought to be to pensions liberation schemes. We consider what the determinations mean for trustees when they are dealing with transfer requests.

The use of pension liberation or “pension scams” has grown rapidly in recent years, with the Pensions Advisory Service recently stating that they had received a “worrying” number of enquires over the past year. Added to this, in 2014 the Pension Ombudsman announced that he was investigating 140 pension liberation complaints. After much anticipation the Ombudsman recently published determinations in relation to two of these complaints which we consider below.

What is pension liberation?

At its simplest, pension liberation involves the transfer of benefits from a registered pension scheme to one that allows the member to gain access to their pension benefits before the age of 55, or allows access to more cash than they would ordinarily be allowed to access as an authorised payment. For many this is seen as an enticing way of unlocking their pension pots, however in reality these scheme providers regularly fail to explain the significant tax implications of the arrangements. In addition, members are often left paying excessive charges and face uncertainty about the security of their pension benefits.

The Determinations:

Determination in a complaint by Mr Gregory Stobie, 8 January 2015

The Ombudsman determined that Mr Stobie had no statutory right to a Cash Equivalent Transfer Value (CETV) as he had not received any remuneration from the employer connected to the transferee pension scheme. Nonetheless, the transferor scheme’s Trust Deed and Rules provided the administrators with discretion to consent to a transfer where the member did not have a statutory right.

The Ombudsman recognised the efforts that the scheme administrator’s had expended in investigating what they considered to be a suspicious transferee pension scheme. The Ombudsman stated there was no doubt they were acting with the best of motives and went beyond the Pension Regulator’s guidance. Despite this acknowledgement, the Ombudsman partially upheld the complaint as the administrators had failed to properly exercise their discretion under the schemes rules.

The Ombudsman’s closing observations provided a stark reminder that even where a trustee’s investigations reveal a suspected pension liberation scheme, trustees have few options other than to delay a transfer to the extent permitted by law, whilst informing the scheme member of the possible repercussions of the transfer. 

Determination in a complaint by Mrs Diane Kenyon, 8 January 2015

When examining whether Mrs Kenyon had a statutory right to a CETV, the Ombudsman applied the purpose and founder tests for an occupational pension scheme as established in the case of Pi Consulting (Trustee Services) Ltd v The Pensions Regulator and others [2013] EWHC 3181 (Ch).

The Ombudsman dismissed the complaint on the basis that the transferee scheme was not an occupational pension scheme, as Mrs Kenyon was neither employed nor remunerated by the scheme’s employer. The Ombudsman further determined that in light of the balance of power between the parties, the burden lay with the current pension provider to satisfy themselves that Mrs Kenyon did not have a right to transfer, and to justify their decision accordingly to the person asserting the right. 

Where do these determinations leave trustees?

Together, these determinations illustrate the very difficult situation of pension trustees. Whilst the Ombudsman is sympathetic to the “highly unenviable position” of trustees (who are provided little by way of concession in the determinations), the determinations make clear that trustees must meet their legal and regulatory obligations. It seems clear that trustees require further legislative support if they are to be effective in seeking to prevent pensions liberation.

If you have any questions about transfer requests or pension liberation, please contact our specialists below. 

Author: Tony Holloran

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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June Crombie

Partner - Head of Pensions (Scotland)

As Head of Pensions in the Scotland office, I bring over 26 years’ experience to my clients to help them to make better decisions and achieve their aims.


Tim Green

Partner - Head of Pensions

I am a Partner in the Pensions team with a broad advisory, transactional and dispute resolution practice.