Hughes v Royal London

24 March 2016
On 16 February the High Court overturned the Pension Ombudsman’s decision in the case Hughes versus Royal London and ruled that we could not block a transfer request to a newly-established SSAS, despite our concerns about the appropriateness of the transfer.

The facts

  • Ms Hughes was a member of the Royal London Personal Pension.
  • She submitted a request to transfer her benefits to the Babbacombe Road 1973 Limited SSAS on 21 July 2014.
  • On investigation Royal London found that the SSAS had been established on 30 June 2014 and the sponsoring company, Babbacombe Road 1973 Limited, had been registered at Companies House on 4 June 2014. Ms Hughes was the sole employee.
  • The purpose of the transfer was to take advantage of an opportunity to invest with a Gibralter-based company which was marketing, among others, property investments in Cape Verde.

What happened

The High Court’s decision was not about pension liberation, although concerns about the receiving scheme were what prompted the trustees to question whether the transfer was appropriate in the first place.

The legal case hinged on whether Ms Hughes had a statutory right to transfer to the scheme given that she had no earnings from the sponsoring employer. If she did then Royal London had no option but to make the transfer, if she didn’t then Royal London had discretion to decide whether or not to allow a transfer, taking account of the circumstances of Ms Hughes’ request.

The Pensions Ombudsman had already determined that, in his view Ms Hughes had no statutory right to a transfer because, although she did have earnings, these did not come from the sponsoring employer. However, the decision of the High Court was that a member’s earnings need not be in respect of their particular employment with the sponsoring employer to meet the legal requirement. 

Were we right to block the transfer?

The legal position was uncertain given that our original decision to block the transfer was supported by the Pensions Ombudsman. Following the court’s decision there is now a degree of clarity that did not previously exist. 

Were we right to be concerned?

We believe we were. Having originally concluded that Ms Hughes did not have a statutory right to a transfer we exercised our discretion to refuse the transfer based on our understanding of Ms Hughes’ position and the Pensions Regulator’s Guidance.

The Pensions Regulator (TPR) has published a checklist of things for trustees to look out for which may indicate a pensions scam. Insofar as we were aware this request included eight of these warning signs:

Receiving scheme not registered, or newly registered, with HM Revenue & Customs tick
A recently set up small self-administered scheme, where the member is a trustee tick
Sponsored by a newly registered employer tick
Sponsored by a dormant employer tick
Connected to an unregulated investment company tick
Allude to overseas investments tick
Been contacted by an ‘introducer’ tick
Decided to transfer after receiving cold calls… tick

With this in mind I believe we could have been failing in our duty if we had not raised our concerns.

What next?

The court’s decision was in respect of the right to transfer, and not whether there was an intention to liberate the pension or not and goes some way to clarifying where that statutory right exists.

Nothing within the judgment changes the need to take proper account of the Regulatory Guidance  and trustees and providers should continue to raise concerns with their members and policyholders if these arise as a result of the due diligence which they have done. However, if a member is insistent on transferring, they must be allowed to do so where the statutory right exists.

About the author

Fiona Tait

Pension Specialist

Fiona joined the life and pensions industry in 1989. She is a Fellow of the Personal Finance Society, an Associate of the Chartered Insurance Institute and is currently Vice-President of The Insurance Society of Edinburgh. Fiona specialises in the areas of at retirement planning and pensions and divorce.

Last updated: 16 May 2016

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