The Channel Island Financial Ombudsman (CIFO) has recently been considering some complex issues involving pension-related complaints against Channel Islands pension providers where the complainant cites unacceptable delays in transferring a pension to a new pension provider.
The complainant is usually the pension plan beneficiary and these, at least in part, relate to pensions in the form of a trust which is a commonly used pension structure in the Channel Islands.
The complaints involve several different issues arising from pension transfer requests that can create frustrating delays and clearly illustrate the complexity of this area of financial services.
- NON JERSEY VIS-À-VIS JERSEY PROVIDERS NOT AGREEING
- The first type of pension transfer dispute arises where the local pension provider and the new proposed pension provider located outside of the Channel Islands are unable to agree the terms of a customer-requested pension transfer.
- Each provider seeks to clarify its respective legal liabilities through the provision of letters of indemnification to the other. The pension provider seeking to receive the transferred pension is based in a different regulatory jurisdiction, which adds further complexity to the situation as CIFO can only review the provision of pension services in or from the Channel Islands.
- While it is understandable that a pension provider would seek an indemnification to legally protect itself from the risk of any future change (e.g., something which might undermine the original treatment of the pension assets by tax authorities), some might be seen to go beyond what might be fairly and reasonably required in order to thwart a pension transfer or alternatively to avoid liability for an unsuitable future action taken by another provider with the pension assets.
- “LETTER OF UNDERTAKING” FOR A TRANSFER
- Similar to the first type above, the second type of pension transfer dispute arises where the current pension provider requires a “letter of undertaking” before approving the transfer,
- essentially a written assurance that the new pension provider will adhere to certain obligations to protect the integrity of the original pension plan and the underlying assets. When these obligations are not accepted by the new provider, this causes delays and frustration to the complainant, the plan beneficiary seeking the pension plan transfer.
- Essentially the disagreements in the two scenarios above are not between the complainant and their current pension provider, but rather between two different pension providers, one in the Channel Islands and one in another jurisdiction, with the complainant stuck in the middle frustrated by the inability of the two financial services providers to reach agreement.
- REFUSAL TO TRANSFER THE ASSETS =
- Finally, the third type of pension transfer dispute arises when the current pension provider refuses to transfer the assets to the new pension provider – sometimes without disclosing its reasons for the refusal.
- Some may claim that as trustees they do not consider the transfer to be in the beneficiary’s best interest and therefore their fiduciary obligations as trustee prevent them from carrying out the transfer as instructed by the customer or the customer’s independent financial advisor.
- This sets up a direct conflict between the beneficiary’s stated wishes and the trustee’s interpretation of its fiduciary duty under the law.
- In this situation, unless the current provider is being demonstrably unreasonable in delaying the transfer or in its approach to the transfer to the new pension provider, it is not possible for CIFO to obtain the evidence required to resolve the complaint based on the fairness and reasonability test set out in our law.
- OUTSIDE OF JERSEY
- Other than the local pension provider, all of the other parties with an interest in the pension transfer: the independent financial advisor, the underlying investment funds, the investment managers, and the pension provider recipient of the plan transfer, all potentially stand to benefit economically from the plan transfer and are generally outside of the Channel Islands and the scope of CIFO’s remit.
- CIFO does not have the ability to compel evidence and review these other financial services providers and their roles in the proposed transfer to determine whether the local pension provider is acting fairly and reasonably in the circumstances by refusing to make the transfer as requested.
- It is noted that the local pension provider also stands to benefit from refusing to make the transfer as the assets remain in place and fees continue to be earned.
- At the present time, there is little clear guidance that applies to these circumstances from the law or regulation and limited published information on industry general or good practice.
- It is noted, however, that further regulatory guidance is currently in the public consultation stage in Guernsey, information about that can be located here.
- These complex complaints can involve an assessment of the performance of a trustee’s fiduciary duty and actions, decisions, or potential conflicts of interest of other parties outside of the Channel Islands beyond the reach of CIFO’s remit or ability to compel the production of required information for our review.
- Although it will depend on the individual circumstances of the complaint, CIFO may decide that it is more appropriately resolved through the legal system which has the ability to compel evidence, assess the fiduciary’s performance and determine the appropriateness of the actions of other financial services providers beyond CIFO’s remit, especially those in other jurisdictions.
- CASE STUDY
- CIFO has published a case study which illustrates these pension transfer issues. It can be located here.
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