In the High Court case of Pi Consulting (Trustee Services) Ltd v The Pensions Regulator and others, it has been ruled that 9 suspected liberation vehicles are occupational pension schemes, and therefore are under the jurisdiction of the Pensions Regulator.

“Pension liberation” typically occurs where a pension saver is induced to transfer existing pension funds to another scheme, for a fee, in order to obtain access to their pension early. When pension funds are accessed early, the risk is of total loss of pension and the pension saver and the scheme operator can be subject to a significant tax liability.

In May this year, City of London Police raided a number of organisations suspected of involvement in pension liberation schemes. Dalriada Trustees and Pi Consulting were subsequently appointed by the Pensions Regulator as independent trustees of these suspected schemes. However, there were concerns that the schemes may not be occupational pension schemes, thus casting doubt on the application of the Regulator’s intervention powers to the schemes.

In July, the independent trustees brought a joint action, asking the High Court to rule on the legal status of the schemes. The case was not to settle a dispute, but rather to address the uncertainty surrounding the status of such schemes. The independent trustees argued that the schemes were actually occupational schemes, whilst the Pension Regulator, appointed by the Court, argued against this.

As the schemes were found to meet the “purpose” and “founder” tests set out in the Pensions Act 1993, they were held to be occupational pension schemes. This ruling confirms the Pensions Regulator’s ability to appoint independent trustees to supervise questionable schemes. As it had been agreed that there would be no decision made regarding whether or not the schemes were fraudulent pension liberation vehicles, the scope of the judgement is limited. But, there may be further litigation regarding whether the schemes were fraudulent in design. The judge did confirm that an occupational pension scheme’s founding employer must have one or more employees at the point when the scheme is established.  

Responding to the ruling, Andrew Warwick-Thomson, the Pensions Regulator executive director for defined contribution, governance and administration, commented:

“We welcome the legal clarity provided by this ruling, which will help inform our wider strategy and enable us to take the appropriate steps to combat activities that could undermine confidence in the pension system.

The judge in this case has ruled that, on a literal interpretation of the scheme documents, these schemes were established as occupational pension schemes. This means that a number of powers are available to us in respect of such schemes, and the market should not doubt that we will continue to take action against schemes where there is evidence of misuse of members’ pots.

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. The actions that we took in relation to these schemes still stand and the independent trustees put in place by us remain appointed.”

Mr Warwick-Thomson further commented that this ruling did not remove the need for the pensions industry to remain vigilant and to carry out necessary due diligence.

In previous articles we have written about the information campaign launched by the Pensions Regulator and others to raise awareness of the dangers of illegal pensions liberation schemes, and the guidance published by HMRC explaining the potential costs to members of transferring pension funds to a pension liberation scheme.

To further address and prevent pension liberation activities, HMRC has now strengthened its processes in relation to the registering of pension schemes and the transferring of pension funds between pension schemes, with effect from 21 October 2013. Pension schemes will now only be registered following a detailed risk assessment. Where HMRC are requested to confirm the registration status of a scheme which pension funds are to be transferred to, HMRC will not seek consent to respond from the receiving scheme. HMRC will only provide confirmation where the scheme is registered and the information held by HMRC does not indicate a significant risk that the scheme was set up, or is being used, for pension liberation. 

Details of the changes, and a joint Pensions Regulator and HMRC publication, can be found on the HMRC website.