Trustees may remain liable where a historic transfer-out cannot be proved

The Deputy Pensions Ombudsman has upheld a complaint against the trustees of a defined benefit (DB) scheme after finding that a transfer-out from the early 1990s had not been shown, on the balance of probabilities, to have been validly completed. The trustees relied on a cash equivalent transfer value (CETV) illustration, an internal ledger entry and HMRC records, but this evidence was not considered enough and the Deputy Pensions Ombudsman concluded that no valid transfer had been shown and that liability for the member’s deferred benefits therefore remained with the original scheme.

The trustee was directed to put the member back into the position she should have been in, including payment of past and future benefits, and to pay £1,000 for distress and inconvenience.  This decision will be relevant to trustees of DB scheme and PTL insurers.

Background

Mrs R was employed by Midland Bank between September 1972 and March 1990. She was a member of what became the HSBC Bank (UK) Pension Scheme, a DB pension scheme. She left service in March 1990 with a deferred entitlement.

In January 1991, she received documentation showing a CETV of £5,287, guaranteed for three months. The trustees' records later suggested that, on 2 September 1992, Mrs R's benefits - including her guaranteed minimum pension - had been transferred to a Liberty Life personal retirement plan for £6,181.11.

The issue only emerged years later. In August 2016, Mrs R sought to draw her deferred pension from the DB scheme with now HSBC and was told that her benefits had transferred out in September 1992. She said that she had never asked for or consented to any transfer and had never received paperwork relating to one.

Mrs R then tried to trace the receiving arrangement. Liberty Life had since passed through later corporate acquisitions, ultimately becoming part of Sun Life Financial of Canada (UK) Ltd (Sun Life). No records of Mrs R’s pension could be located. HMRC records also did not establish a full transfer and appeared instead to suggest that only two of three membership periods had transferred, which tended to undermine the suggestion that the whole benefit had left the DB scheme with HSBC.

Mrs R complained under the DB scheme's internal dispute resolution procedure. Her complaint was rejected at both stages.

Context

At the material time, the transfer regime was governed by Schedule 1A to the Social Security and Pensions Act 1975. In broad terms, a member had to exercise transfer rights by written application within six months of leaving pensionable service. Trustees then had 12 months from receipt of that application to complete the transfer. Importantly, trustees were only discharged once the transfer had been completed in accordance with the statutory regime.

The DB scheme’s own trust deed pointed in the same direction. It permitted transfers, but only where certain conditions were satisfied. Completion of a valid transfer, together with receipt by the trustees or managers of the receiving scheme, were what discharged the trustee from further liability.

That matters. This was not simply a question of whether somebody at some point appears to have intended a transfer to happen. The real issue was whether there was enough evidence to show that a transfer had in fact been validly carried through in accordance with the statutory regime and the scheme rules, so as to extinguish the trustee's liability.

The parties’ positions

The trustees' case was that the transfer took place on 2 September 1992. It relied on three things: (1) the 1991 CETV, (2) the ledger entry recording a transfer payment of £6,181.11, and (3) HMRC records said to support the proposition that Mrs R’s benefits had transferred.

The trustees also said that the ledger entry would not have existed unless the transfer had occurred. As for the absence of records at the receiving provider’s end, that was said to be explicable by document loss during later acquisitions and business transfers.

For Mrs R, Sun Life, as successor to the receiving provider, took a different position. Following what it described as a comprehensive search, it found no records showing that Mrs R’s benefits had ever been held in an arrangement under its management. It also found no evidence of a transfer in, and no communications with Mrs R about any such transfer. On that basis, it denied liability.

The Deputy Ombudsman’s decision

The Deputy Pensions Ombudsman upheld the complaint against the trustees and not against Sun Life.

The core finding was that, on the balance of probabilities, Mrs R’s deferred DB entitlement had not been validly transferred to the Liberty Life arrangement on the basis that:

1. There was no core transfer documentation. There was no written transfer request from Mrs R, no transfer discharge, no receipt from the receiving scheme and no proof of payment beyond the trustee’s own ledger entry. That is a serious evidential gap in any transfer case, particularly one in which the trustees say liability had been discharged.

2. The documents that did exist did not sit together comfortably. The trustees relied on a CETV of £5,287 dated January 1991, but the alleged transfer payment recorded in the ledger was £6,181.11 and was said to have been made some 18 months later. The figures did not reconcile on the face of the material available, and the CETV itself had only been guaranteed for three months.

3. The external material did not cure the problem. The Deputy Pensions Ombudsman was not persuaded that HMRC’s records established a full transfer. Indeed, they appeared to indicate only two completed membership periods. That sat awkwardly with the governing deed if, as the determination suggests, the deed would not have permitted a partial transfer of the kind implied by those records.

4. The absence of records at the receiving provider’s end also did not help the trustees. If anything, it reinforced the difficulty. Where trustees contend that accrued rights have left the scheme, they need to be able to show that by evidence. Missing records on both sides are unlikely to be enough.

5. Even if a transfer had occurred in September 1992, the Deputy Pensions Ombudsman considered that it would in any event have fallen outside the statutory window under the 1975 Act and would have been invalid.

The effect of the determination was that the trustees had to pay benefits on the footing that Mrs R had not validly transferred out.

The trustees were directed to pay the past and future scheme benefits to which Mrs R was entitled, calculated by reference to the 1991 CETV, adjusted for inflation since 1991, with a retirement uplift including interest for delayed payment, and to pay £1,000 for distress and inconvenience. No liability was imposed on Sun Life given that there was no evidence that the benefits had ever successfully transferred into an arrangement for which it was responsible.

Key takeaway

This determination is a useful reminder that trustee liability does not disappear just because historic records suggest that a transfer-out may have been processed. If the evidence does not establish a valid transfer, the liability may still remain with the ceding scheme.

It is also a reminder that record-keeping failures can result in substantive liability problems. A case like this is not merely about imperfect administration. If trustees cannot prove that accrued rights were validly transferred out, they may still be responsible for paying those benefits decades later.

This case is also a reminder that trustee discharge depends on a transfer having been completed in accordance with the relevant statutory regime and the scheme’s own rules at the time, not simply on internal records suggesting funds were moved. If those requirements were not met, the argument that liability has been discharged may fail even if there is evidence that some step was taken at the time.

This is, of course, a fact-specific determination. It should not be read as meaning that every historic transfer supported by incomplete records can be unravelled. But it does show the difficulty trustees can face where the member denies having requested the transfer, the receiving arrangement cannot show receipt, and the available documents do not match up.

Where a disputed historic transfer-out is being relied on as the answer to a member’s claim, the question is not whether the records suggest that a transfer might have happened. The question is whether the evidence is sufficient to show that a valid transfer actually did happen. The decision will be of relevance to trustees and PTL insurers – PTL insurers may want to look at this decision and the documentation the Deputy Pensions Ombudsman suggested should be available and ask whether a scheme (particularly one looking at run-off cover) has the documentation to evidence historic transfers that was missing in this case.