Essential pensions news

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1 Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare Essential pensions news Updater July 2015 Contents 01 Introduction 03 Pensions Ombudsman publishes guidance on redress for non-financial injustice 04 TPR publishes quick guide on DB funding for employers 04 TPR confirms consultation with FCA on specific risk warnings for DC schemes 05 HMRC publishes issues no. 8 and 9 of its Countdown Bulletin 05 HMRC published Pension Schemes Newsletter no Abolition of DB contracting-out: the Pensions Act 2014 (Savings) Order 2015 necessary tasks provisions retained after April 6, Carrington Wire: Determinations Panel issues contribution notice following loss of scheme s parent company guarantee 10 IBM appeal to go ahead, but unlikely before April Pensions Ombudsman pension liberation: Hughes (PO-6375): provider allowed time to update procedures to reflect Regulator s guidance Introduction Essential Pensions News covers the latest pensions developments each month in an at a glance format. The Summer Budget 2015 pension aspects The Chancellor delivered his Summer Budget on July 8, The pensions aspects, including those relating to the tapering Annual Allowance, which will affect more people than expected, are summarised at the link below. Lifetime allowance as already announced, the Government will reduce the lifetime allowance (LTA) for pension contributions from 1.25 million to 1 million from April 6, Transitional protection for pension rights already over 1 million will be introduced alongside this reduction to ensure the change is not retrospective. The LTA will be indexed in line with the CPI from April 6, Annual allowance as expected, there will be a reduced annual allowance (AA) for high earners. Those with annual incomes over 150,000 will see their AA tapered away to a minimum of 10,000. This policy comes into effect from April 6, Those high earners who can afford to would be well advised to save as much as they can into their pension this year (and use any carry forward relief available) before their AA starts to be reduced. Legislation will be introduced to align pension input periods (PIPs) with the tax year with immediate effect from July 8, A PIP that was open on July 8, 2015 closed on that date and the next PIP runs from July 9, 2015 to April 6, 2016, creating two mini prealignment and post-alignment tax years. Transitional measures are being introduced to protect savers who might otherwise be affected by the changes in the 2015/16 tax year, by giving individuals an 80,000 AA for 2015/16, although savings made between July 9, 2015 and April 6, 2016 are limited to 40,000.

2 For the 150,000 threshold, income taken into account is adjusted income which includes taxable earnings, and the value of all pension contributions, but not charitable contributions. This means high earners cannot avoid the reduced AA via salary sacrifice. The AA taper will apply only to individuals whose income (excluding pension contributions) exceeds 110,000 (his threshold income), to ensure that the taper does not affect lower paid individuals with high pension contributions. However, there is an antiavoidance provision applying to employment income given up by way of salary sacrifice on or after July 9, The taper and the associated legislative changes will be included in the summer Finance Bill 2015 (see below). Draft guidance on the tapered AA is available from HMRC, along with the relevant information note. Taxation of lump sum death benefits currently, under the pension flexibilities which have applied since April 6, 2015, there is generally no tax charge on lump sum death benefits paid from crystallised or uncrystallised funds if an individual dies before age 75 and the lump sum is paid within two years of the death (although in some cases a LTA surcharge may arise). However, where a member dies after age 75, a tax charge of 45 per cent arises. As expected, under the Finance Bill 2015, for deaths on or after April 6, 2016, lump sum death benefits in respect of the death of a member over age 75 will attract tax at the marginal rate of the beneficiary. However, if the recipient is a trust or a company, the 45 per cent special lump sum death benefit charge will continue to apply. Changes to tax relief the Government has published a consultation paper on whether and how to undertake a wider reform of pension tax relief. One of the suggestions in the consultation document is that there could be a fundamental change to the current system of exempt-exempt-taxed (EET) to taxed-exempt-exempt (TEE). Less radical changes such as further changes to the LTA and AA may also be considered, together with other options in between. The consultation period runs until September 30, Salary sacrifice the growth of these schemes and their effect on tax receipts will be closely monitored. State pension the Government remains committed to the triple lock. Secondary annuity market plans for a secondary annuity market will be set out in Autumn 2016 and implementation of the reforms will be delayed until Pension flexibilities a consultation is planned before the summer on options aimed at simplifying the process for transferring pensions from one scheme to another, including in relation to any exit penalties. Pension Wise access to the free guidance service will be extended to individuals aged 50 and over. Previously, it was available only to those over age 55. Comment Change to pensions tax relief is once more on the agenda, with the Chancellor s launch of a wide-ranging consultation ending on September 30, The Green Paper puts the case for a fundamental change to the current system of EET on savings to a TEE regime. While a TEE system would flatter Treasury finances for some years to come, there would be no guarantee that future governments would not legislate to tax pension withdrawals as well. 02 Norton Rose Fulbright July 2015

3 Salary sacrifice has escaped reform for now. The Government recognises that such schemes are becoming increasingly popular and the cost to the taxpayer is rising. It therefore proposes actively to monitor both their growth and their effect on tax receipts. Current tax reliefs were reduced as expected from April 2016 with the reduction in the LTA and the new tapering AA for high earners. The new AA is more painful than it initially appeared when first announced, as it will catch people earning over 110,000 with pension contributions in excess of 40,000. The tapering of the AA and the resulting alignments of PIPs are complex and any current retirement calculations may need to be reconsidered, along with the scope for additional pension savings in the 2015/16 tax year. The plans for a secondary annuity market have been sensibly delayed until The extended timetable should mean that there is time to build in a robust package of consumer protections. Pensions Ombudsman publishes guidance on redress for non-financial injustice Of interest to all schemes is the guidance published by the new Pensions Ombudsman (PO), Anthony Arter, about remedies for non-financial injustice caused by maladministration. What is non-financial injustice? The PO s website describes non-financial injustice as: Inconvenience or time and trouble or time and bother suffered by an applicant. That is, the time and effort spent by an applicant in relation to the maladministration and in having to pursue the complaint, including needing to go through a complaints process where the maladministration was both avoidable and identifiable at an earlier stage. Distress for example: concern, anxiety, anger, disappointment, embarrassment or loss of expectation that an applicant may experience. Distress can vary from mild irritation to (exceptionally) anxiety that requires medical treatment. The main points of the guidance include: No award is likely to be made if the non-financial injustice is insignificant. However, if the non-financial injustice is significant, awards should properly reflect this. The usual starting point for awards will be 500 or more. In most cases, redress for non-financial injustice is likely to range from 500 to 1,000. Although the courts have historically held that an award over 1,000 should only be given in exceptional circumstances, the guidance notes that there has been a recognised shift in attitudes to making higher awards. Inconvenience awards are not calculated in direct proportion to the time spent, or based on the fees that a professional person might have charged. Examples of factors the PO will take into account in calculating inconvenience awards include whether the complaint could have been avoided (for instance, whether it was obvious on the facts that there was maladministration), whether there were excessive delays, whether any inconvenience arose on a single or number of occasions, whether any distress arising was material and how the respondent handled the complaint. View the factsheet. Norton Rose Fulbright July

4 TPR publishes quick guide on DB funding for employers Of interest to DB schemes is the new quick guide for employers from the Pensions Regulator (TPR), together with a short video explaining how its Code of Practice 3: Scheme funding applies to employers. The Code came into force in July 2014 and applies to schemes with valuation effective dates from July 29, 2014 onwards. TPR considers that this should be a useful reminder ahead of forthcoming guidance on assessing and monitoring the employer covenant. The guide explains what is expected of trustees in relation to managing risks and taking a balanced approach to reaching funding targets. As well as emphasising the importance for employers to work together with the trustees and to engage in an open, collaborative and transparent manner, the guide reminds employers that they should provide trustees with the information the trustees need to carry out their duties, including, where relevant, the employer s sustainable growth plans. The guide also highlights that schemes with valuations in 2015 are likely to face higher than expected deficits due to challenging market conditions. TPR s recent annual funding statement (on which we reported in our June 2015 update) sets out its views on current market conditions and guidance for trustees and employers on how they can reach a balanced outcome in their valuation in light of these prevailing conditions. View the quick guide to DB funding. TPR confirms consultation with FCA on specific risk warnings for DC schemes TPR has confirmed that it is consulting with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) on whether large trust-based DC schemes and master trusts should be required to provide specific risk warnings to members who wish to use the DC pensions flexibilities. Currently provision of specific risk warnings is only a requirement for providers of contractbased DC pensions, who must flag such risks to consumers, and give them appropriate warnings about the choices they have in accessing their pension savings. Trust-based DC schemes are only required to give generic risk warnings to members in advance of their retirement or when they receive requests from members for flexible access. The suggested text for these warnings is included in TPR s Essential guide to communicating with members about pensions flexibilities published in April 2015 to assist trustees. Any change in the current regime is expected to dependent on the scheme s size. Speaking at the Pensions and Benefits UK 2015 conference, Mark Boyle, TPR s chairman, confirmed that the possible extension to the disclosure regime was aimed at larger defined contribution schemes and master trusts that plan to offer the full suite of drawdown options to members and that the new requirements would be as similar as possible to those required by the FCA for contract-based schemes. 04 Norton Rose Fulbright July 2015

5 HMRC publishes issues no. 8 and 9 of its Countdown Bulletin Of interest to all contracted-out DB schemes is the publication of HMRC s two recent editions of the Countdown Bulletin, with only nine months to go until the end of contracting-out. Schemes that wish to use HMRC s Scheme Reconciliation Service to check their scheme GMP and membership data against HMRC records must register their interest before April 5, Countdown Bulletin no. 8 In this edition, HMRC includes: A link to a copy of the slides used at the DWP/HMRC Pension Industry Conferences held in April and May 2015, at which various issues were raised relating to the Scheme Reconciliation Service. Some of HMRC s responses to queries are set out in the current Bulletin in the form of FAQs, and the remaining issues will be addressed in the August Countdown Bulletin. A link to a DWP State Pension Toolkit, which contains guidance, video, fact sheets and photo case studies to help employers communicate to employees the April 2016 changes to the State Pension. An update on the GMP Micro Service, which is currently being developed, and which is planned to go live in April The facility will allow schemes to request GMP calculations on a self-service basis as well as requesting contracted-out contributions and earnings information to confirm the GMP amount. A statement that HMRC currently has no plans to extend the December 2018 deadline for resolving GMP queries. Queries will not be accepted beyond October 2018, to allow HMRC time to resolve them. HMRC warns that the period towards the deadline is likely to be busy and schemes are urged to act as soon as possible. View Issue no. 8 of the Countdown Bulletin. Countdown Bulletin no. 9 In this edition, HMRC publishes its responses to the remainder of the queries raised during the two Pension Conferences held in April and May View Issue no. 9 of the Countdown Bulletin. HMRC published Pension Schemes Newsletter no. 70 On July 21, 2015, HMRC published the latest edition of its newsletter, summarising all the announcements in the Budget on July 8, 2015 relating to tax relieved pension savings. The newsletter includes summaries of the Summer Budget announcements as set out above: tapered AA reduced LTA from 1.25 million to 1 million from April 6, 2016 lump sum death benefits relating to deaths on or after April 6, 2016 will be taxed at the recipient s marginal rate Norton Rose Fulbright July

6 the provisions relating to the sale of annuities will be postponed until 2017 a consultation will take place on potential changes to pension tax relief, ending on September 30, In addition, HMRC intends to consult on changes to unfunded employer financed retirement benefit schemes to tackle their use in obtaining tax advantages in relation to remuneration. View the newsletter. Finance (No. 2) Bill 2015 published the key new pensions tax measures The legislation required to put in place the pensions-related measures outlined in the Chancellor s Summer 2015 Budget speech (see above) has been published as part of the Finance (No. 2) Bill The key pension provisions are summarised below. Reduced annual allowance From the start of the 2016/17 tax year, the AA will be tapered for high earners, applying to individuals who have an adjusted income (including pension contributions) of more than 150,000. For these individuals, the AA will be reduced by 1 for every 2 by which their adjusted income exceeds 150,000, up to a maximum reduction of 30,000. Individuals with a threshold income of less than 110,000 (excluding employer pension contributions) will not be caught by the taper. Pension input periods Pension input periods (PIPs) will be aligned with the tax year from 2016/17. This change is intended to facilitate the new AA taper. All PIPs open on Budget day, July 8, 2015, closed with immediate effect. AA transitional rules for 2015/16 Complex transitional provisions in the Bill will apply for the 2015/16 tax year to protect individuals who might otherwise be adversely affected by the changes to PIPs. In particular, the AA will be doubled to 80,000 and the money purchase annual allowance doubled to 20,000, while the tax year will be split into two mini tax years, pre-dating and post-dating Budget day. Taxation of lump sum death benefits The Bill will amend the Finance Act 2004 by further limiting the cases where the 45 per cent special lump-sum death benefits charge applies following a member s death. From April 6, 2016, certain lump-sum death benefits payable from a registered pension scheme or non-uk scheme on the death of a member over age 75 will be taxed at the marginal rate of income tax that applies to the recipient, rather than under the special lump-sum death benefits charge. The marginal tax rate applies where the benefits are paid to an individual who is the ultimate beneficiary. If the recipient is a trust or a company without a marginal tax rate then the special lump-sum death benefits change will still apply. The second reading of the Bill took place on July 21, 2015, and Royal Assent will not be acquired until after the Summer recess. 06 Norton Rose Fulbright July 2015

7 Abolition of DB contracting-out: the Pensions Act 2014 (Savings) Order 2015 necessary tasks provisions retained after April 6, 2016 Several provisions of the Pension Schemes Act 1993 (PSA 1993), which were to be repealed from April 6, 2016 as part of the abolition of DB contracting-out, will remain in force after that date. The Pensions Act 2014 (Savings) Order 2015 comes into force on April 6, It has the effect of allowing HMRC and trustees of pension schemes that are contracted-out on a DB basis, to carry out any necessary activity relating to a period of contracted-out employment which occurred before the abolition date. These include: The provisions relating to the certification of contracted-out schemes, cancellation of certificates, the national insurance rebate, HMRC supervision of contracted-out schemes and state scheme premiums. These are saved for three years in order to require or allow schemes and HMRC to carry out necessary tasks relating to a period of contracted-out employment which occurred before April 6, A contributions equivalent premium will be permitted to be paid after April 6, 2019 in circumstances where the scheme entered a PPF assessment period before the April 6, 2016, and the assessment period continued beyond April 6, Section 16(2) of the PSA 1993 will be retained. This provides for the revaluation of earnings factors for early leavers, in relation to an earner whose service in contracted-out employment ended before April 6, Carrington Wire: Determinations Panel issues contribution notice following loss of scheme s parent company guarantee Of interest to all DB schemes is the recent determination by TPR to issue a contribution notice against an individual. Background and summary Carrington Wire Limited (CWL) was a manufacturing company based in Yorkshire. It was the sole sponsoring employer of the Carrington Wire Defined Benefits Scheme (the Scheme) which had around 500 members. In 2006, CWL was acquired by PAO Severstal, the Russian parent company of the Severstal group (Severstal). CWL was loss making at the time Severstal acquired it. As a condition of the acquisition, the seller required Severstal to provide a guarantee to the Scheme covering all payments due to the Scheme from CWL (including payments due under section 75 of the Pensions Act 1995 (section 75)). However, Severstal negotiated a clause in the guarantee which provided that it would fall away if Severstal ceased to be associated with CWL. In 2008, Severstal began to explore options to exit its investment in CWL. In early 2010, Severstal informed trustees, employees and TPR that it had decided to commence a solvent wind-down of CWL. It assured the trustees that it would continue to honour the guarantee following the wind-down. In February 2010, the wind-down was effectively complete. CWL s plant and machinery were transported to Russia, and its employees were made redundant. CWL was left with only one material asset, a property, no ongoing business and a substantial liability to the Scheme. Norton Rose Fulbright July

8 Without informing the trustees, Severstal entered into negotiations with Mr Richard Williams, sole director and shareholder of a shell company, Gillico Ltd (Gillico), for the sale of CWL. On June 16, 2010, Severstal sold the entire shareholding in CWL to Gillico for 1, with a purported working capital adjustment of 400,000, the majority of which was received by Mr Williams personally. The sale meant that the Scheme lost the benefit of the guarantee and became solely reliant on CWL which Severstal had already run down. CWL entered liquidation in December 2012 and entered a PPF assessment period on the same date. The Determinations Panel (DP) of the Pensions Regulator (TPR) issued a contribution notice (CN) for 382,000 against Mr Williams, who took control of CWL. Claims for a CN against Severstal and one of its subsidiaries (the Russian Targets) were settled beforehand in return for a payment of 8.5 million to the Scheme. The DP found that both the main purpose and material detriment tests under section 38(4) of the PA 2004 were satisfied. In relation to the former, the DP held that preventing recovery of a section 75 debt from a guarantor fell within the scope of s38(5), just as much as preventing recovery from the sponsoring employer. The DP also acknowledged that the main purpose test is likely to have a subjective as well as an objective element. On the facts, it was apparent that the need to terminate the guarantee was the fundamental driver of the series of events culminating in the share sale. It followed that one of the main purposes of these acts was clearly to prevent recovery of the section 75 debt. Major factors in reaching a settlement with the Russian Targets were that they held no assets in the UK and that any enforcement action would have had to proceed through the Russian courts. Whilst TPR was confident that it had a strong case, it obtained specialist advice on enforcement of CNs in Russia. The settlement funds were transferred to the Scheme in January 2015 and TPR withdrew the case as far as it related to the Russian Targets. A hearing in relation to Mr Williams was held on March 11, 2015, following which the CN was issued against him. Main points of the DP s determination against Mr Williams The DP found Mr Williams was a party to an act or failure to act for the purpose of s38(3)(a). The series of acts or failures to act relied upon by TPR were as follows: Mr Williams knowingly assisted in repeated deliberate failures to notify the trustees or TPR of the decision to sell the shares in CWL in a way that would terminate the guarantee to the Scheme. s from Mr Williams were clear evidence that he knew of the importance of secrecy to the sale transaction, and that he was aware it was essential not to alert the trustees or TPR to the existence of the proposed sale before it completed. He knew there had been no notification (to either TPR or the trustees), did nothing to rectify this and negotiated expressly on the basis that there was no need to do so and that it should not be done in order to avoid the need for Gillico to offer a replacement guarantee. The transaction therefore took place in secret and shares in CWL were sold to Gillico for 1 with no equivalent replacement guarantee in place for the Scheme. TPR did not accept that Mr Williams did not provide Severstal with any assistance in failing to inform TPR or the trustees of the intended sale. He refrained from contacting CWL s management to discuss future management of the business post-sale, or the trustees to discuss the potential loss of the guarantee, despite knowing their opposition to the sale for this reason. 08 Norton Rose Fulbright July 2015

9 Neither did TPR accept that it was necessary for Mr Williams to be under a legal duty before he could be said to have provided assistance by failing to act in a certain way. Mr Williams provided assistance by maintaining the secrecy essential to the transaction. Main purpose test The DP found that both the main purpose and the material detriment test were met. Mr Williams argued that preventing recovery of a section 75 debt from a guarantor did not fall within the scope of s38(5)(a). The trustees and TPR disagreed, and the DP upheld their argument. In Bonas, Warren J had concluded that the ordinary meaning of the words of that section included preventing the recovery of a section 75 debt by preventing a claim under a guarantee relating to that debt. Warren J also thought there was considerable force in the argument that there were subjective and objective elements to the main purpose test. The key issue was whether the main purpose test was satisfied taking into account Mr Williams subjective intentions, in that he fully intended to bring about a situation where Severstal could avoid its liabilities under the guarantee. The need to terminate the guarantee was a fundamental driver to the sale, not only for Severstal but so that Mr Williams could acquire CWL for his own benefit. Severstal and Mr Williams were involved in a joint enterprise with a joint main purpose to [terminate] the guarantee. Although not strictly necessary to consider the material detriment test once the main purpose test had been satisfied, the DP concluded it was also met. Detriment was caused to the Scheme by the series of events culminating in the SPA, and the secrecy of the transaction prevented the guarantee being called upon. Reasonableness test The reasonableness test was satisfied because: Mr Williams was involved to a high degree in that he was pivotal to the transaction. It was not reasonable for him to act as he had. He knew the value the trustees placed on the guarantee and must have appreciated the effect of its potential loss on members benefits. The DP rejected Mr Williams assertion that the CN would force him into bankruptcy, and ruled that his financial situation was irrelevant as to whether it was reasonable to issue a CN. If Mr Williams could defeat the issue of a CN because he had paid away monies received, the regime could be turned into a rogue s charter. Comments The determination sets out a useful analysis of the scope of the target test and the main purpose test, and the subjective and objective elements of the latter. There are concerns that if too great a weight is put on the subjective element, some targets may escape liability on narrow grounds. However, the DP declined to analyse this further on its own and this may be an issue for an appellate court to consider in future. The comments in connection with the material detriment test are also interesting, as the acts or failures complained of in Bonas and Desmond occurred prior to April 14, Norton Rose Fulbright July

10 IBM appeal to go ahead, but unlikely before April 2016 In previous newsletters, most recently in March 2015, we have reported on the case of IBM v Dalgleish, where the High Court held that the manner in which the employer, IBM, had made changes to scheme benefits was a breach of both its Imperial duty of good faith and its implied contractual duty of trust and confidence. IBM has received leave to appeal both the breach judgment and the remedies judgment to the Court of Appeal, although the hearing is unlikely to take place before April Pensions Ombudsman pension liberation: Hughes (PO-6375): provider allowed time to update procedures to reflect Regulator s guidance Of general interest is the PO s determination that it was reasonable to allow the provider, Aviva UK Life, time to update its procedures and prepare new literature to reflect the guidance issued by TPR on pension liberation in February There was therefore no maladministration by Aviva in transferring a member s benefits to another scheme in March 2013 without first amending its procedures, for example by supplying the member with TPR s leaflet on pension liberation. Summary The PO has dismissed a complaint by a member, Anthony Hughes, who submitted that Aviva failed to make adequate checks on the receiving scheme (Capita Oak Pension Scheme) when he requested a transfer. The result was that he could not subsequently locate the 37, transferred. The PO held that even if Aviva had followed TPR s new guidance, the member had a statutory right to take a cash equivalent transfer value (CETV), which could not be supplanted by regulatory or other guidance. Likewise, this statutory right overrode Aviva s duty of care to the member. The approach taken by another provider in relation to a separate abortive transfer by the complainant was not strictly relevant as it might not necessarily be representative of good industry practice. The PO expressed his great sympathy for the member s position, but there had been no administrative failure by Aviva in complying with the member s request, either in relation to its legal obligations or good industry practice. Background Statutory right to a transfer value At the time relevant to this complaint, section 94 of the Pension Schemes Act 1993 (PSA 1993) provided that a member of an occupational or personal pension scheme acquired a statutory right in certain circumstances to take a CETV out of the scheme. Section 95 of the PSA 1993 set out how a member of an occupational or personal scheme who had acquired a right to a CETV may exercise this right. He was required to make an application in writing requiring the transferring scheme to use the CETV in one of several ways. These included acquiring transfer credits or rights in another occupational or personal pension scheme, the trustees or managers of which were able and willing to accept payment in respect of the member s accrued rights. 10 Norton Rose Fulbright July 2015

11 Section 99 of the PSA 1993 provided that if trustees or managers received an application under section 95, they were obliged to do what was needed to effect the transfer within six months of the date they received the application (or the date the member attained normal pension age, if that was earlier). Pension liberation So-called pension liberation can cover any form of possible unauthorised use of pension savings. The most common forms involve members being offered the opportunity to access their pension funds before their normal minimum pension age or the promise of unrealistically high investment returns. Many pension liberation schemes are set up ostensibly as occupational pension schemes that are registered with HMRC and at first sight do not involve any illegality. However, they often breach HMRC tax rules regarding unauthorised payments or loans, leading to adverse tax consequences for the member. TPR issued guidance for pension professionals in February 2013 which included a list of the indicators of possible pension liberation fraud and suggestions for further steps trustees or providers could take if they were concerned a proposed transfer may involve fraud. In recent months, there has been a series of PO determinations concerning pension liberation, which we summarised in our May 2015 briefing. Facts Mr Hughes was a member of two schemes, the Aviva Personal Pension Plan and a policy with Countrywide Assured. He contacted both providers in early January 2013, requesting to transfer his benefits to the Capita Oak Pension Scheme (the Capita Scheme). Aviva sent him a transfer pack the same day. This included its strong recommendation that Mr Hughes should obtain financial advice before making a decision. Aviva received Mr Hughes completed discharge form on March 1, 2013, together with an HMRC registration form for the Capita Scheme, which was said to be a defined contribution occupational pension scheme. The Capita Scheme also confirmed it was willing to accept the transfer and apply it to provide benefits consistent with HMRC scheme registration. Aviva transferred 37, to the Capita Scheme on March 19, Countrywide Assured meanwhile wrote to Mr Hughes on March 4, 2013 saying it could not proceed without sight of the original policy schedule. In July 2013, Countrywide Assured again wrote to Mr Hughes, enclosing TPR s Scorpion leaflet on pension liberation, asking him to complete a declaration about the background to the transfer and saying that it had contacted the Capita Scheme for clarification on its arrangements. The transfer from Countrywide Assured to the Capita Scheme did not proceed, though the precise reasons for this were not provided by the parties (nor was Countrywide Assured a party to the complaint). Mr Hughes complained to the PO that Aviva transferred his benefits without making adequate checks about the Capita Scheme, with the result that he could not now locate his funds. He submitted that if Aviva had adopted a similar approach to Countrywide Assurance and had checked the Capita Scheme s credentials, he would not have gone ahead with the transfer. Norton Rose Fulbright July

12 Among other things Aviva submitted that it had included the Scorpion leaflet in response to all transfer requests after TPR issued its guidance on pension liberation in February 2013, but it had already begun processing Mr Hughes transfer request by that time. Determination The PO dismissed the complaint. He noted that he was not dealing with advice to transfer to the Capita Scheme. It was not suggested that Aviva provided advice, and advice from the Capita Scheme or an associated business would be unregulated. The question was whether there had been maladministration by Aviva, which entailed considering its legal obligations to Mr Hughes and whether it acted consistently with good industry practice. The Capita Scheme was registered with HMRC (on July 23, 2012) and purported to be an occupational pension scheme, so FSA regulation was not relevant. The Capita Scheme had also confirmed it was willing to accept the transfer and that it would be applied to provide benefits consistent with its registration with HMRC. The transfer application made to Aviva therefore complied with the requirements for acquiring and exercising the statutory right to a CETV, which overrode any regulatory or other guidance, and there was no suggestion otherwise from TPR. To the extent that Aviva had a duty of care to Mr Hughes, this was likewise overridden by his statutory right to take a CETV. In any event, TPR s guidance to providers about pension liberation was not issued until February Although the guidance could be regarded as a point of change in what might be regarded as good industry practice, it was reasonable to allow some time for providers to update their procedures and prepare new literature to reflect the guidance. Aviva had received the final transfer paperwork on March 1, 2013, shortly after the guidance was issued, and it was therefore not maladministration that it had not yet amended its procedures. The PO also noted that TPR had said the Scorpion leaflet should be included in transfer packs, but Mr Hughes had received his pack in January 2013, before the guidance was issued. In relation to Countrywide Assurance, the PO noted that it too had not enclosed the Scorpion leaflet in its letter of March 4, Furthermore, the approach taken by another provider was not strictly relevant, as there might be slightly different circumstances and therefore the actions of any one individual provider might not necessarily be representative of good industry practice. The PO said that despite the current levels of publicity about pension liberation, he could not apply current levels of knowledge and understanding of pension liberation/scams or present standards of practice to a past situation. Even if Aviva had carried out further due diligence or warned Mr Hughes that the transfer was unusual or risky, it was possible that he might have insisted that the transfer went ahead. The PO expressed his great sympathy for the Mr Hughes position, observing that he had transferred away from a reputable established scheme and there is little doubt that it was against his best interests to do so. But there had been no administrative failure by Aviva in complying with his transfer request, either in relation to its legal obligations or good industry practice. 12 Norton Rose Fulbright July 2015

13 Comment The determination will be of some comfort to providers who are instructed to effect transfers by members. An unanswered question in relation to this and several of the other recent PO determinations concerning transfers from personal pensions is the extent to which TPR s guidance on pension liberation is strictly relevant to the provider. However, since TPR s guidance has been endorsed by a number of bodies, including the Financial Services Authority (FSA) (and now the Financial Conduct Authority (FCA)), technical jurisdictional questions are probably beside the point. However, it is understandable that providers would have regard to the Scorpion guidance, as well as to earlier guidance issued by both TPR and what was then the FSA. Norton Rose Fulbright July

14 Contacts If you would like further information please contact: Peter Ford Partner, London Norton Rose Fulbright LLP Tel Lesley Browning Partner, London Norton Rose Fulbright LLP Tel Lesley Harrold Senior knowledge lawyer Norton Rose Fulbright LLP Tel Norton Rose Fulbright July 2015

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16 nortonrosefulbright.com Norton Rose Fulbright Norton Rose Fulbright is a global legal practice. We provide the world s preeminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare. Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact. Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients. References to Norton Rose Fulbright, the law firm, and legal practice are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together Norton Rose Fulbright entity/entities ). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a partner ) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright. Norton Rose Fulbright LLP NRF /15 (UK) Extracts may be copied provided their source is acknowledged.