Has the High Court opened a door for potential scammers? Ian Neale looks why.

Football teams defending a slender advantage are often urged to 'keep it tight.' Pensions providers trying to do the same against would-be pension liberators have been wounded by a recent High Court judgment (Hughes v Royal London).

The Pensions Ombudsman had previously backed the insurer in denying Ms. Hughes a transfer of her modest personal pension fund to an occupational pension scheme; on the grounds she had no earnings from employment with the sponsoring employer.

Following the breadcrumb trail through the legislation, the judge found instead that it was only necessary that the member had earnings – where from, didn't matter.

For some time now the focus of attention for scammers has been the potential for exploitation of the small self-administered scheme (SSAS) route to liberation.

Whilst there are formidable barriers to setting up a personal pension scheme, it is quite easy to register a company with one director who is also the sole member, trustee and scheme administrator of an occupational pension scheme, registered with HMRC.

HMRC has no role these days in approving such transfers (it did before 6 April 2006, i.e. A-Day, of which, more later).

However, if it finds out that it wasn't a "recognised transfer," severe tax penalties are threatened – and not just on the member: the transferring provider is liable to a 'scheme sanction charge.'

This is one reason why providers pay close attention when asked to transfer to a newly-established SSAS.

A recognised transfer is simply a transfer to either a registered pension scheme or a QROPS (overseas scheme), where the receiving scheme undertakes to provide 'transfer credits' in exchange for the cash equivalent transfer value. There are thus two sources of legislation governing pension transfers: the pension tax rules and social security law.

In 2014 HMRC abandoned its 'process now, check later' approach to requests for scheme registration and is now supposed to be more rigorous.

In response to criticism that no qualifications were required to set up and run an occupational pension scheme, HMRC introduced a set of 'fit and proper person' checks, but we have seen no evidence of how that is working.

While it would be difficult for many SSAS members to pass even a cursory examination, they can get away with saying they employ someone in that capacity.

HMRC has been asked whether an option would be to reintroduce the Pensioneer Trustee (an independent professional trustee who had to be appointed to every pre-A Day SSAS and act as HMRC's watchdog).

HMRC isn't going to do that, claiming "it wouldn't be EU compliant" but without explaining why. That increasingly looks like a bizarre 'own goal,' and the 'fit and proper person' regime (and the recurrent rounds of constraints on QROPS) like an attempt to shut the stable door.

With little support forthcoming from HMRC, providers concerned that they might be dealing with a fraud have tended to focus on whether the member has a statutory right (or if not, a contractual right) to transfer.

In part this depends on whether the member will receive transfer credits, meaning rights allowed to an earner under the rules of the occupational pension scheme.

The Hughes case turned on whether she was an "earner" for this purpose, and the judge found that the law allowed the source of earnings to be "any trade, business, profession, office or vocation."

It wasn't always like this. Originally, the Pension Schemes Act 1993 and the pre-2006 discretionary pensions tax regime combined to require the transferring member to be in paid employment (i.e. in "qualifying service") with the sponsoring employer.

The definition of an occupational pension scheme was broadened by the Pensions Act 2004 to allow membership by non-employees.

There is evidence in Hansard that the Government intended it to extend only to former employees, but succumbed to the implications of the ECJ judgment in the Allonby case.

The result now is that as with NEST, even self-employed persons can now be admitted to membership of an occupational pension scheme.

So freedom reigns: and that's not entirely a bad thing, even in the present context.

There are genuine SSASs, to which a family member of the scheme founder might wish to transfer their personal pension, for example, in order to bolster the scheme's ability to purchase the business premises of the founder's firm.

For providers who have had one of their main props against dubious transfers kicked away, the judgment also frees them to a degree from the need to delve deeply into the connections between the member and the receiving scheme and scheme sponsor.

Ian Neale, Director, Aries Insight