When ‘Guaranteed’ May Not Actually Mean Guaranteed

Here, we discuss a concerning trend where some pension trustees revisit transfer values, demanding repayment years later. This is useful reading for those preparing to sit the CII AF7 exam.

This article is correct as at 30 October 2023.

Those of you who have been studying hard for your AF7 exam should well know the transfer process like the back of your hand:

• The member applies for the transfer value.
• Within one month, the trustees must inform the member of the need to seek advice.
• Within three months, the member must be given a guarantee date
• Within ten days of that, the trustees provide the statement of entitlement showing the ‘guaranteed transfer value’

Where the member applies for the transfer in writing within three months of the guarantee date, then the scheme is required to pay the guaranteed transfer value. If they do not do so, then the scheme is not required to do so and may recalculate the value and may also charge for doing so. Because guaranteed means guaranteed… doesn’t it?

Well, it appears not – in the eyes of some pension trustees. Over the last couple of years, there has been a worrying trend in pension trustees contacting members who have transferred out of their pension schemes years later and stating that they ‘miscalculated’ the transfer value. Many scheme members have been asked to pay the money back, and some have been subject to a campaign of harassment, including solicitor’s letters and threats of legal proceedings.

Accounts of some of the tactics used can be found here:

Revealed: Capita demands £1m DB transfer money back from members

Mercer trustees hire law firm to recover £90k DB transfer overpayment

The obvious response would be that they can’t do that, right? After all, the transfer value exchange is intended to be irrevocable. That has to mean irrevocable for both sides. It would be ludicrous for one party to be allowed to change the terms years after the fact without the other party’s consent. And how could anyone advise a client that it was clearly in their best interests to transfer out of a defined benefit scheme if trustees were permitted to go around retrospectively changing transfer values years after the fact?

The general experience seems to be that most of the firms concerned will give up if members stand their ground. We are not yet aware of any case which has gone as far as legal proceedings. The trustees’ actions certainly seem to be unlawful based on the Occupational Pensions Schemes (Transfer Values) Regulations 1996, which require a member to be given a further three months to accept if a transfer value is to be amended. Something which cannot be done if it has already been paid. Nonetheless, it adds another layer of worry to what is already a high-risk area of business.

AF7 sometimes requires commentary on the risks associated with defined benefit transfers. I wonder if the CII will give you a mark for that.

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