Test case clarifies Regulator role but does nothing to help trustees

A High Court judge has ruled nine schemes suspected of being used for pension liberation should be treated as occupational, rather than personal, pension schemes.

The decision means such schemes fall under the remit of the Pensions Regulator (TPR), rather than the Financial Conduct Authority which is responsible for personal pensions.

“This is a bloody nose for the Regulator”, said JLT Employee Benefit’s Hugh Nolan.

If the High Court had ruled the funds were personal pension schemes, the schemes would have been set up illegally and trustees would not be obliged to agree to transfer requests. The decision is a clear set-back in the Pensions Regulator’s battle against liberation.

Pensions liberation fraud has risen not fallen since the launch of Operation Bloom

And the problem is not going away. Commenting on the ruling, Fraser Smart, managing director of Buck Consultants, said: “The Pensions Regulator will be the first to agree that pensions liberation fraud has risen not fallen since the launch of Operation Bloom [the cross body taskforce tackling liberation]”,

On the same day as the court ruling, the Regulator and HMRC, the government tax office, issued a joint statement revealing the process for registering a scheme would get harder to meet.

Independent trustee firms Dalriada and Pi Consulting were appointed to the schemes by the Regulator and brought the case to court in July to establish the schemes’ legal standing. The firms argued the schemes were occupational, with TPR claiming they were not, though the two were not in dispute.

Whether or not the schemes were scams was not within the case’s remit.

The ruling does nothing to help trustees

While the Regulator has said it “welcomed the legal clarity” the ruling does nothing to help trustees. Matthew Swynnerton, partner at DLA Piper, said that in one sense the ruling was “a positive outcome as TPR’s decision to appoint independent trustees doesn’t need to be unwound and it’s a lot clearer for TPR to know what actions it can take.

Andrew Warwick-Thompson, TPR’s executive director for defined contribution, governance and administration, outlined those actions: “We have a suite of powers we can use to disrupt pension liberation fraud including suspending and prohibiting trustees, appointing independent trustees to schemes to protect assets, freezing bank accounts and repatriating monies.”

It is less clear what their ability is to legitimately block transfers

“But trustees are no further on”, said Swynnerton, “it is less clear what their ability is to legitimately block transfers”.

JLT Nolan agreed. He said the ruling was “slightly disappointing”.

“There is a still a clear and present danger to members from liberation fraud and trustees face a dilemma where fraud is suspected but the member has a statutory right to transfer.”

The timing of HMRC’s statement is not a coincidence

The timing of HMRC’s statement is not a coincidence. If the decision had gone the other way it seems likely the announcement may have been saved for later when the members of Project Bloom next need to show they are acting.

As it is, HMRC is ditching its highly criticised “process now, check later” approach which allowed registration instantly after the completion of an online form.

Nolan thought it was good to see HMRC and TPR working together and being prepared for the judgment but that liberators would be “laughing their way to the bank” despite the taxman’s battle cry.

When it was easy to register, why not do 20 or 30 at a time?

“It’s been talked about for a long while that it’s too easy to register a scheme, there will be a whole batch of them ready to go. When it was easy to register, why not do 20 or 30 at a time?”

Perpetrators may be one step ahead when it comes to registering schemes for liberation but HMRC has at least hinted it will give tip-offs on suspect pension plans.

HMRC has said it will not give its approval to schemes unless it is sure they are not a risk

Though it stopped short of promising to provide a list of suspects, HMRC has said it will not give its approval to schemes unless it is sure they are not a risk.

Pension liberation scorpion

Action has been a long time coming – in July JLT estimated the amount liberation would pass £1bn by early 2014 – but Project Bloom does appear to be getting up a head of steam. Next it must help trustees, who at the moment are being asked to answer an impossible question – which law do they choose to break, as Barnett Waddingham’s Julian Mainwood puts it.

Until then, trustees have just the Regulator’s scorpion action pack for comfort.

Hear from Dalriada Trustees’ founder Brian Spence during a special session on pension liberation at ourManchester Trustee Summiton 6 November, 2013