FinTech in Turkey: Overview
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
This month we have drawn together some of the Pensions Ombudsman’s (PO’s) 2015 determinations in two areas which are notoriously problematic for trustees and administrators:
The salient points are highlighted below, and all decisions are available for further reading, if required, on the PO’s website.
We also assess briefly two High Court decisions awaiting review in the Court of Appeal.
Important to all schemes is awareness of pensions liberation scams, which constitute a considerable proportion of the PO’s caseload. These cases illustrate the difficulties for administrators in dealing with possible pensions liberation. Where a member has a statutory transfer right that he is determined to exercise even in the face of severe warnings, administrators cannot resist payment, so long as they have made such enquiries as they think necessary to establish the existence of the right.
In this case, the PO found that there was no statutory right to transfer. The main reason was that the intended receiving scheme was not within the definition of “occupational pension scheme” under the Pension Schemes Act 1993 since it was not “for the purpose of providing benefits to, or in respect of, people with service in employments of a description”. Secondly, there was no right to the transfer under the scheme rules as a provision making a transfer mandatory on a written request was overridden by another rule barring unauthorised payments.
In this case, although the intended scheme was an occupational scheme within the statutory definition, Mr Stobie was not an “earner” in relation to it, so the PO found there was no statutory right to transfer. However, under the rules of the transferring scheme, a Standard Life SIPP, Standard Life had discretion to pay a transfer value even where there was no statutory right. The PO partially upheld the member’s complaint that Standard Life refused to make the transfer. The PO noted that Standard Life had not followed the steps recommended in TPR’s guidance on pension liberation, and that Standard Life had not exercised its discretion under the SIPP’s rules properly. He directed Standard Life to consider payment when there was no statutory right to transfer.
However, the PO sounded a “serious note of caution” and suggested that Mr Stobie should take professional advice from a properly authorised person before taking a step that was at the least high risk, and at worst potentially financially disadvantageous.
A deferred member of a personal pension scheme must be allowed to exercise his contractual right under the scheme rules to transfer his pension fund to an occupational pension scheme in circumstances where the transfer was not an unauthorised payment. This contractual right was separate from the statutory transfer right, which was not established as the transfer would not have secured “transfer credits”, as defined in the relevant legislation.
It was not maladministration for two personal pension providers to transfer a member's scheme benefits to an HMRC-registered occupational scheme where the member had a statutory right to take a cash equivalent transfer value (CETV).
The PO dismissed a complaint by the member who was subsequently unable to contact the receiving Capita Oak Pension Scheme about the transferred funds, totalling £52,401.08. The PO held that the member had a statutory right to a CETV, which could not be supplanted by regulatory or other guidance. The transferring providers' duty of care to the member was overridden by this statutory right. In any event, the transfers took place before the Pensions Regulator issued guidance on pension liberation and the Ombudsman could not apply current good industry practice to past situations. Even if the transferring providers had carried out further due diligence or expressed concern to the member, he might have insisted on the transfers in any event.
The administrator of a personal pension scheme properly exercised its discretion under the scheme rules in refusing to transfer a member's benefits to another scheme because it had legitimate concerns over the status of the receiving scheme, the proposed investment and the extent of the advice received by the member. The administrator made the decision having established that the member did not have a statutory right to a CETV, which would have overridden its discretion under the scheme rules, as well as any regulatory or other guidance.
The PO dismissed a complaint by the member against the administrator, who refused to make a transfer to an arrangement described as a small self-administered scheme. The member did not have a statutory right to take a CETV as the transfer would not have secured “transfer credits” since the member was not an “earner”, in relation to the receiving scheme. Although the Pensions Regulator's guidance was not strictly relevant to the administrator as an FCA-regulated provider, it was understandable that the administrator had regard to it, in addition to the FCA handbook and its duty of care, in exercising its discretion under the scheme rules.
PO determinations relating to the payment of lump sum death benefits are also often a source of complaint. The cases highlight that schemes should have in place proper procedures for flagging outstanding death benefits that remain unpaid towards the end of the two-year time period, so that payment can be made before any tax charges become due. Difficulties can also arise when trustees and administrators exercise their discretion on the distribution of death benefits. The proper approach for decision-makers is to undertake a thorough fact-finding exercise after the member's death to ensure they are fully aware of the relevant factors to be taken into consideration, and only then to decide how to exercise their discretion.
Lump sum death benefits paid from a registered pension scheme are authorised payments for tax purposes if certain conditions are met. Where a member of a DC pension arrangement dies before age 75, any uncrystallised funds lump sum death benefit must be paid to the beneficiary within two years of the earlier of the date the scheme administrator knew of the death, or could first be reasonably expected to have known of it.
Here, the PO held that the scheme administrator should have made a member's widow aware of the statutory two-year time limit for payment of death benefits to avoid the payment being an unauthorised payment for tax purposes. He also held that if the administrator had done so, the widow would have provided the necessary documents to allow it to make the payment within the time limit.
The PO partially upheld a complaint by the widow of the holder of a retirement annuity contract, who provided the administrator with a grant of probate four years after she informed it of the policyholder's death. The PO directed the administrator to reimburse the widow for the unauthorised payment charge and unauthorised payment surcharge (totalling £36,866) that resulted from the ensuing unauthorised payment, with interest. But he also held that the late payment of these charges after the due date was caused by an accountant instructed by the complainant and was entirely outside the administrator's control. It therefore had no responsibility for the resulting late payment surcharges and interest on late payment (totalling £5,865).
The administrator's failings caused the widow distress and inconvenience for which it was directed to pay £200 in compensation. However, the PO did not make any award for the legal fees claimed, because the complaint was “relatively straightforward”.
The PO held that a pension provider's decision-making process in relation to the discretionary payment of a lump-sum death benefit under a personal pension was “so flawed as to be regarded as unreliable throughout”.
The complaint of the deceased’s partner was partially upheld where the member had left her all his scheme benefits in a will made in 2007. Although the scheme administrator initially told the complainant she would receive the entire death benefit of over £225,000, it later decided to pay her only half and to give the remainder to the member's previous partner, whom the member had made his nominated beneficiary for death benefits under the scheme in 1999. The scheme administrator had no formal review process in place at the relevant times and, in particular, “[u]nrecorded decisions were made based on unidentified evidence by decision makers who may or may not have had appropriate authority”. The administrator also wrongly took the complainant's claim of detrimental reliance on its initial decision into account as a factor when later retaking its decision.
The PO directed the scheme administrator to retake its decision to the extent of deciding whether it should award the complainant more than 50 per cent of the death benefit. If it did not increase the award, the administrator must pay her £1,500 for distress and disappointment caused by it changing its original decision and must, in any event, separately pay her £500 for the inconvenience of a delay in paying the 50 per cent award and the need to pursue the whole matter. Payment of simple interest on any late or increased award was also ordered.
It was reasonable for the trustees of a self-invested personal pension to delay making a decision on the distribution of death benefits in order to give the deceased member's adult children time to provide further information, given the circumstances of the case. These included allegations by the children of financial irregularities, including possible fraud, against the member's current partner, Mrs Barnicoat, whom he had nominated to receive the death benefits six months before he died.
The PO dismissed a complaint by Mrs Barnicoat, who was eventually awarded the member's death benefits nearly a year after his death. She submitted that the delay while the trustees looked into the children's allegations caused her financial loss and considerable distress, a situation she said was exacerbated by the trustees' decision to keep the details of the children's claims confidential.
The PO found that although the trustees could have been more proactive in checking the truth of the allegations where possible and keeping the member updated without breaching confidentiality, it had acted fairly and reasonably in the exercise of its discretion. In doing so, it had balanced the need to obtain accurate information against the “legitimate desire to protect people's confidentiality”.
The decision to dismiss the complaint is sensible in these circumstances. The full details of the allegations made by the deceased member's children are not available and so it is difficult to evaluate the pension provider's conduct in delaying the payment of death benefits pending its investigation.
This determination is a reminder that when a provider or trustee is required to exercise discretion over death benefits, this is often not straightforward. On the one hand, it is effectively required to make payment within two years so as to avoid tax charges. On the other hand, interested parties may reasonably expect the trustee to gain a thorough understanding of the underlying background, which may take some time to establish.
However, in this case the benefit payment was made well before the end of the two-year window, so the complainant's submission that it should have been made earlier was unlikely to find favour with the PO. It is therefore also unsurprising that the PO refused to reimburse her expenditure in pursuit of her complaint.
Looking ahead to the New Year, there are two cases due to be heard early in 2016:
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
During his State of the Nation Address, the President gave reassuring impetus to solving the current energy crisis and perennial load shedding that has been decimating the economy.