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Pension liberation

Pension scams have been around for a long time but are an increasing problem. Now that members have greater flexibility about accessing their DC savings, there’s a greater risk that members may be tempted to transfer benefits out of the defined benefit (DB) environment and into an inappropriate scheme – or to withdraw their DC pension savings to invest cash elsewhere.

Pension scams – risks for members

Some members may be attracted by the offer of very high returns, but this may mean that investments carry a much higher risk; others by the prospect of accessing pension savings before normal minimum pension age. Unless ill-health conditions are met, such a payment is likely to be unauthorised. In many cases, high transfer fees and other charges, including tax, may erode members’ savings.

In some cases members are aware of these risks and want to transfer anyway; in others, they are the victims of fraud; and in the worst-case scenario they could lose their pension savings.

Pension scams – risks for trustees

It’s a difficult balancing act for trustees. If statutory requirements are not met, they may not get a valid statutory discharge, so the member may still be able to claim benefits from the scheme. If the payment is unauthorised, it is likely to trigger tax charges for the scheme and the member; and if the member’s savings are lost, there’s the risk of a future complaint. 

On the other hand, if a member has a statutory right to transfer and the receiving scheme meets all the requirements but trustees block the transfer, there is a risk of fines and (again) member complaints. Complaints so far to the Pensions Ombudsman (TPO) have related both to trustees blocking transfers and trustees allowing transfers, so trustees need to tread carefully. 

The key issue: the right to transfer

A member has a statutory right to take a cash equivalent transfer value to another occupational or personal pension scheme if:

  • they have accrued rights to any category of benefits under the scheme rules;
  • no crystallisation has occurred in relation to those benefits; and
  • the member is no longer accruing rights to that particular category of benefits. 

Restrictions on current statutory transfer rights are expected to be imposed via regulations (the Pension Schemes Bill currently makes provision for this). If there is no statutory right, then any right to a transfer depends on the scheme rules – trustees may have discretion about whether to consent to the transfer. It’s important that trustees exercise that discretion properly (eg taking into account all relevant and no irrelevant factors) – but this does provide potentially useful wiggle room if trustees have concerns about the receiving scheme.

Checking for scam risk

In some cases, pension liberation might not be a concern because trustees are familiar with the receiving scheme and can fast-track the transfer request with limited due diligence. If initial enquiries reveal scam risks, then trustees should undertake further checks that are proportionate to the situation. Scam risks are constantly evolving and trustees should ensure that they keep up-to-date in this area.

Checking the receiving scheme

Trustees need to check that the receiving scheme is a registered scheme or a qualifying recognised overseas pension scheme so that the transfer will be a recognised transfer and not an unauthorised payment – this is also relevant in the case of non-statutory transfers.

A member may request a transfer to an occupational pension scheme where they are not employed by, and receiving earnings from, a participating employer. This is a risk indicator for a scam – the member should be given all relevant information to alert them to that risk (eg the Pensions Regulator’s materials). The lack of an employment link is not currently a reason to block a statutory transfer,[1] but this is expected to change. 

Following the Code

The Code of Practice on Combating Pension Scams applies to transfers from DC and DB arrangements; it sets out risks to look for and questions to ask. TPO has previously judged trustee conduct against industry practice at the time of the transfer, so trustees should keep up-to-date in this area. It is key to have an audit trail showing that trustees have operated the correct processes, asked the right questions and considered all the issues.

The bottom line

The courts and TPO have made it clear that if a member is determined to enforce a statutory right even in the face of severe risk warnings then, as long as trustees have confirmed that all aspects relating to the transfer are valid, they have no legal right to block the transfer beyond the six-month deadline (unless they apply to the Pensions Regulator for an extension of time in which to consider the request).

If trustees are concerned that a member may be the victim of a scam, they should provide all possible risk warnings, but may have to comply with the request. Remember that additional rules and advice requirements now apply in relation to transfers of DB rights over £30,000. The Pensions Regulator currently also expects trustees to issue a template letter to DB members requesting a CETV quote.

Trustee protection

Due diligence is vital: the statutory discharge which normally protects trustees from further claims following a statutory transfer could be held to be invalid unless trustees have taken all reasonable steps to check that the trustees of the receiving scheme are acting in good faith; TPO has found that trustees were not entitled to the discharge where they had not carried out reasonable checks. Trustees could also consider requesting a bespoke discharge from the member but may not be able to insist on this.


Hughes v Royal London (2016).