The Pensions Ombudsman has rejected a complaint by a member who complained that his transfer value had been delayed due to the trustee unnecessarily insisting on him taking MoneyHelper scams guidance (Mr W CAS-93568-H0D0). This is the first Pensions Ombudsman determination to consider the overseas investments "amber flag" under the transfer values regulations.
Background
The regulations governing statutory transfer values provide that where trustees decide that an "amber flag" is present, a member has no right to a transfer value unless the member provides evidence of having attended a pension scams guidance appointment with MoneyHelper. An amber flag is present where the trustees decide that "there are any overseas investments included in the receiving scheme". On a literal interpretation the flag could be present in relation to almost all receiving schemes, given that most schemes will have some form of investment in overseas equities. There has been no consensus within the pensions industry regarding the correct interpretation of the overseas investments amber flag.
Facts giving rise to the complaint
The member submitted a request to transfer his pension fund to a personal pension scheme administered by a company which was FCA-authorised and part of a large financial services group. The member was asked to complete a questionnaire which asked whether the member's fund would be invested overseas, to which the member responded "Global Funds Used". The transferring scheme sought clarification on this point. The member's response showed that the receiving scheme offered the opportunity to invest in global funds, including one which primarily invested in "shares of smaller companies from developed countries around the world".
The transferring scheme trustee concluded that an amber flag was present and informed the member that he needed to attend a MoneyHelper appointment in order for the transfer to proceed. When the member's financial advisers disagreed that such an appointment was necessary, the trustee sought legal advice. The legal advisers noted that the overseas investments amber flag caught a wider range of schemes than was perhaps intended, but concluded that a MoneyHelper appointment was required.
The member subsequently attended a MoneyHelper appointment, following which the transfer value was paid. By that time several months had elapsed since the member's original transfer request, and the value of his pension fund had fallen significantly. The member argued that the trustee had unnecessarily delayed his transfer value by requiring him to attend a MoneyHelper appointment.
Ombudsman's conclusion
The Ombudsman noted that the wording of the regulations means that an amber flag is present where the trustees "decide that" there are overseas investments included in the receiving scheme. He also noted that where trustees request information from a member to determine whether the overseas investments amber flag is present, the relevant standard of proof is whether the trustees have "reason to believe" the flag is present. "Reason to believe" is defined as meaning that "there is a reasonable foundation for the belief" on the basis of all the evidence and information available.
The Ombudsman commented that, "…it appears that the wording of the Transfer Regulations and intended practical application may not be aligned". Against that backdrop, having regard to the information provided to the trustee, and the fact that the trustee had sought legal advice, the Ombudsman considered that the trustee was entitled to decide that there were overseas investments in the receiving scheme, and that the trustee's literal interpretation was not unreasonable. The Ombudsman therefore did not uphold the member's complaint.
Our thoughts
Much industry discussion around the meaning of the overseas investments amber flag has assumed that ultimately only one interpretation can be correct. However the relevant wording provides that an amber flag is present where the trustees "decide that…there are any overseas investments included in the receiving scheme". The Ombudsman's decision focuses on the trustee decision aspect of the amber flag, effectively looking at whether the trustee acted reasonably in reaching its decision. The Ombudsman's conclusion is likely to provide comfort to trustees who have followed, or received legal advice that they need to follow, the express wording of the regulations and the overseas investments amber flag.
One issue which has yet to be considered by the courts or Pensions Ombudsman is whether units in a fund managed and regulated in the UK should be considered an "overseas" investment if the underlying investments include shares in overseas companies. This issue was touched on in correspondence between the member's advisers and the trustee in this case, but not determined by the Ombudsman.
