Savers will be at “greater risk” from pension scams following a landmark High Court ruling which saw a provider’s decision to block a suspicious transfer overturned.
The case, Hughes v Royal London, focused on a £9,000 pension transfer request made in 2014 to a new scheme.
Royal London refused the request because it had concerns about the status of the scheme. Hughes’ right to transfer was also questioned.
Hughes took her case to the Pensions Ombudsman who ruled in favour of Royal London. However, the case was successfully appealed to the High Court.
Legal experts say that the judgement, in favour of Hughes, could give rise to “further marketing of dubious schemes on the basis that the legal basis for declining transfers has been brought into question”.
Lead legal adviser to Royal London, Pinsent Masons pensions litigation partner Ben Fairhead said: “The consequences of this ruling are far reaching and could leave pension scheme members more exposed to the risk of scams.
“It will now be far easier for individuals to move their money from legitimate schemes, ultimately leading to a potential influx of monies into suspicious schemes as the hands of those being asked to make transfers are increasingly tied by the inflexibility of the law.”
He added the decision “lays bare” the problems facing providers and pension scheme trustees who are grappling with the rise of scams.
“They are effectively tasked by The Pensions Regulator and the Financial Conduct Authority with trying to prevent pension funds disappearing into scams.
“Yet they will be increasingly hamstrung without a legitimate legal basis for declining to make the transfers that ultimately enable the scams to take place.
“Put simply, until now it was common for a pensions provider to request proof of an earnings relationship between the individual and the provider for the potential new scheme.
“In the majority of circumstances most dubious schemes can’t satisfy this criteria, giving legitimate providers grounds to refuse transfers where they had reservations about individuals opening themselves up to potential scams.
“This judgement removes that obstacle, leaving pension holders vulnerable.
“In many ways this decision simplifies the law for pensions providers who have been struggling with burdensome processes to decide whether to facilitate transfers where there are scam concerns.
“However, it also creates a great deal of uncertainty in the battle against pension scams.”
Fairhead explained that barring a change to the law, which he said would not be straightforward, or more decisive action being taken by government agencies to clamp down on suspicious schemes and the perpetrators, all the pensions industry can do for the moment is continue to warn the public.
“Inevitably, in the meantime, scope very much remains for unscrupulous individuals to target and exploit those desperate for cash or enticed by the prospect of implausibly high returns on investments,” he warned.
Royal London
A spokesman for the provider said: “Pensions Liberation and pensions fraud raise serious concerns for providers like Royal London.
“We, therefore, take transfer requests very seriously and look out for the warning signs highlighted by the regulators and relevant guidance. In spite of what we might find, if a customer has a statutory right to a transfer then there is very little we can do if the customer wants to proceed. The transfer must be allowed.
“This judgement provides greater clarity on the circumstances which determine when that statutory right exists and we will obviously comply with the court order relating to Ms Hughes’ transfer.
“Royal London’s concern has only ever been to comply with the regulatory guidance and to assist our policyholders to avoid circumstances where they risk losing all or part of their pension benefits.”
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