Corporate advisers and trustees could face legal challenges from members in the months ahead as a result of more flexible guidance from the regulator in response to the Covid-19 crisis.
New guidance from The Pensions Regulator allows trustees of DB schemes to suspend transfer quotations and payments for up to three months in some circumstances. This relaxation of the rules is designed to help schemes to manage the current volatile economic situation.
However pension consultants point out that TPR can’t change the law of the land, so members’ staturoty right to a transfer within a set timetable has not changed.
LCP partner Steve Webb points out that this could lead to legal challenges at a later stage if members do not get the outcome they want. He adds that advisers could also face challenges as they try to secure the best outcomes for their clients, not least as different schemes may respond in different ways to the new flexibilities.
He points out that if trustees slow down transfers and a firm subsequently goes bust in the meantime, or the transfer level falls, a member may get less than they would have done if they transfer had gone ahead.
However, if trustees go on with transfers, they may find that they give guaranteed transfer values which are way out of line with the true impact of the transfer on the scheme (because of the volatility of markets) and this could damage the interests of remaining members.
LCP partner Jonathan Camfield adds: “The current market volatility means that handling requests for DB transfers is even more challenging for pension schemes than normal, and some will welcome the opportunity to take more time to consider their approach.
“But the legal situation is complex, with trustees potentially facing challenge whichever route they take. If trustees hold up transfers and transfer value levels fall, or the company goes bust in the meantime, members may complain that they have lost out.
“But if trustees allow a transfer that they could have delayed, and client investments perform poorly, there may be a different set of challenges. Trying to do right by the members who want to stay in the scheme and by those who want to transfer out will be difficult balancing act in some cases’.
LCP adds that to further complicate the matter, if trustees make no changes to the transfer process and a member transfers only to see their DC investment perform very badly – or they invest in a scam – there is the risk that trustees will face a compliant, given the TPR’s new guidance allowing them to freeze such transfers for the time being.