Pensions liberation: High Court decision means schemes may need to adjust their transfer processes

A High Court decision, Hughes v Royal London, is of significance in relation to member transfers and
possible pension liberation.

Schemes may need to adjust their transfer processes given this decision. There are risks that members will make poor decisions but schemes will nevertheless have to agree to make a transfer, and schemes therefore need to continue to be vigilant in providing members who request
transfers with full information on pension liberation risks.  The decision means that where a member wishes to transfer their benefits out to another
scheme, and possible pension liberation is suspected, one useful avenue that previously could be used to determine that the member did not have a legal right to make the transfer – if it was established that the member was not employed by an employer of the receiving scheme – is no longer available as grounds to refuse the request.

Suspected pensions liberation may well involve a request by a member to transfer to an occupational pension scheme with an employer that the member appears to have little or no connection to, and in particular that the member is not employed by.  This was such a case and the Pensions Ombudsman
had previously held that the legislation required the member to be an ‘earner’ in relation to the receiving scheme by way of being employed by an employer of that receiving scheme.  The High Court has disagreed, holding that under the legislation the member can be an earner in relation to income from another
source.

The Pensions Ombudsman has issued a statement confirming that this will affect around 200 live cases that it has before it.

The Pensions Regulator’s pension scams guidance includes in its checklist of features indicating possible pension liberation if the transferring scheme employer does not employ the member.  Presumably this point is no longer one to consider and schemes may need to amend transfer processes accordingly.

The Ombudsman statement continues to emphasise that providers will and should seek information before agreeing to transfers, and must provide full information on the risks to the member so that they are making an informed decision to transfer.