“Ex dolo malo non oritur action” – the mysteries of pension liberation

i-love-lawyersAn e-mail plops into my inbox late last night at last squaring the circle of my difference of opinion with the Regulator.

It’s from our old friend Robert O’Donovan, consultant to Neon Legal.

It is not the Regulator who is shaking the big stick at the trustee. It is the Regulator pointing out that the member could wave a big stick at the trustee and the Ombudsman could back them up.

I include the entire email text which was delivered to me “pro bono”.

Robert was one of several present at the Leeds Castle NAPF gig at which the Regulator alerted(aka “waved a big stick”) at trustees who allowed  pension pots to be “liberated” to occupational schemes set up simply to get people hands on their pension money early.

This email partly contains my recollection and partly my comments on the risk of trustees having to pay benefits to a member in respect of whom they have paid a
transfer value to a liberation scheme.

Frankly my recollection is not too precise. I recollect the speakers making the point but I do not have any
recollection that they went into their reasoning. I also don’t remember them commenting on who could enforce the payment of benefits to a member in such circumstances.

So my recollection is not too good but here is my analysis
of the background, which is basically derived from a lecture given by Andrew Spink QC to the Association of Pension Lawyers.

The starting point is that the member has a right to a CETV. Under section 95 PSA 1993 payment broadly has to go to an insurer, a personal pension scheme, or an occupational pension
scheme. In practice liberation schemes are occupational pension schemes because they can be set up without the involvement of a regulated body.

The second step is to ask “what is an occupational pension scheme”? The answer is in section 1 PSA 1993 and it means a pension scheme with the following characteristics: –

• that it provides benefits to, or in respect of,
people with service in employments of a description,… so you need a group of employees or a least one employee.

• it is established by persons including the employer of the persons in the employments of the description mentioned above; and

• the person was already an employer when the scheme
was established.

There is an argument that liberation schemes are
probably not occupational pension schemes within that definition because there is no employer or employees when the schemes are set up.

Alternatively if there is an employer and employee the chances are that the relationship is a sham. So liberation schemes may well not be occupational pension schemes.

My understanding is that this issue is due to come before the courts in July, this month. So we may have an answer fairly soon, by which I mean in the next three months, and my betting is that liberation schemes are usually not occupational
pension schemes.

The third step is to check section 99 (1) PSA 1993 which
says that where a member has exercised the option to take a CETV under section 95 and the trustees have done what they should have done then the trustees shall be discharged from any obligation to provide benefits to which the cash
equivalent related, with a specific exception for GMPs.

But, taking the steps together, one comes to the conclusion that if the liberation scheme is not an occupational pension scheme then there has been no transfer in accordance
with section 95 and the trustees do not have a statutory discharge from their obligation to provide the pension.

If so then, in theory at least, the member could head off to the ombudsman and demand payment of his benefits. I think the
speakers were referring to this risk which you will see is a risk initiated by the member not by the Regulator.

The reasoning is mine not theirs.

However, nothing in law is black-and-white.

First, I think you will find that most members when applying for a transfer value gave a discharge in the paperwork they sign over and above that in the statute. This could possibly protect the trustees but I am not sure, as such a discharge could
be treated as a surrender of pension rights and so prohibited under section 91 PA 1995.

Secondly, and I think this is the stronger protection is that
the courts do not like wrongdoers basing an action on their own wrongdoing.
There are a couple of legal maxims going back to the Middle Ages here, one saying that no right of action can have its origin in fraud and the other saying that actions should not arise from a base or wicked cause. If you enjoy Latin
these maxims are “ex dolo malo non oritur action” and “ex turpi causa non oritur action”.

Amazing though it may seem these medieval maxims are still applied from time to time today where the judge thinks it the right thing to do.

In short I do not think this is a major risk for trustees but this is just my own view.

And finally it will be great fun if liberation schemes are not
occupational pension schemes as I believe the regulator has appointed trustees to a number of the schemes using powers which only apply to occupational pension schemes.

There would then be some very interesting questions as to the validity of the acts of these independent trustees.

Leaving aside the mischievous points made at the end of this wonderful email, I take this away from the conversation.

  1. Everyone is confused
  2. They are confused because of the complexities of pension regulation
  3. To get to some kind of simplicity we need a load of lawyers (especially at the Regulator)
  4. The Regulator is doing its best to get the mess sorted out
  5. And Jonny Liberator is even now heading for his local tax haven with the “swagbag” over his shoulder.
  6. Those with liberated funds had better enjoy their jam today as there will be precious little jam tomorrow.

As I write a test case is being prepared to determine just what is what. Whether these occupational schemes are occupational schemes despite HMRC registration, whether section 95 PSA 1993 and more pertinently section 99(1) and even section 91 applies (and whether the Regulator himself may have accidentally fallen foul of the law).

From my correspondent’s analysis, it seems that the Regulator is right in saying it has not itself threatened trustees, merely pointed out the threat that exists from the Regulations.

This post was first published https://www.pensionplaypen.com/top-thinking/show/92/ex-dolo-malo-non-oritur-action-pension-liberation-fraud-made-simple-sort-of.html

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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