Pensions Bulletin 2020/34

Our viewpoint

High Court blow to illegal “introducers” – but the horse bolted a long time ago

A common feature of pension scams is the involvement of “introducers” who are not authorised to carry out work on pension transfers.  The Financial Conduct Authority has taken two connected introducer firms to court, claiming that they unlawfully carried out regulated investment activities without being authorised by the FCA to do so.

Between 2010 and 2016 the Avacade companies provided free pension reviews to consumers which often resulted in the individuals concerned transferring their pension funds to self-invested personal pensions (SIPPs).  Over 2,000 people transferred over £90m to these SIPPs of which nearly £70m was invested in products from which the Avacade companies made substantial commissions and/or fees.  Investment products included Melina trees in Costa Rica and teak trees in Malaysia.  Later on a bond relating to property development in Brazil came into the picture.

The largest of these investments was the plantation in Costa Rica which was significantly damaged in a hurricane.  The Financial Services Compensation Scheme has paid out compensation on the basis that this investment has a nil value.

In a lengthy judgment on 30 June 2020 it was held that the two Avacade companies:

  • Made investment-related arrangements and advised on investments in contravention of section 19 of the Financial Services and Marketing Act 2000 (FSMA)
  • Made financial promotions – through their website and by calling investors in contravention of section 21 of FSMA
  • Made false or misleading positive statements – including as to the relative or absolute risk profile of investments – in contravention of section 397 of FSMA and (since 1 April 2013) section 89 of FSMA

In a consequential judgment on 5 August 2020 the High Court made an interim order that the two Avacade companies pay restitution of £10.715m and the three directors pay £6.7m (although the orders against the individuals are pending a second trial about personal liability).  Injunctions were also granted against the defendants doing the same sort of thing again.


This is all well and good except that much of the unlawful activity took place in the first half of the last decade.  Even in the unlikely event that all of the ordered restitution finds its way back to those who transferred their pension rights it will be a very small plug in a very large hole of missing assets.  Criticisms of a regulatory system that has so conspicuously failed consumers for such a long time remain well-founded.

Even more than ever, the involvement of an unregulated introducer in a request for a transfer is a huge red flag for pension trustees and administrators.  But we still await the ability for them to refuse a transfer.  We may see a restriction on the statutory right to transfer in regulations made under the Pension Schemes Bill currently before Parliament, possibly from next year.  This measure was first promised in 2016 (see Pensions Bulletin 2016/49).

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Pension transfer inheritance tax risk reduces following Supreme Court ruling

The Supreme Court has found, in a significant judgment handed down on 19 August, that HMRC was wrong to seek inheritance tax on death benefits on the basis that a transfer from a Section 32 policy to a personal pension shortly before the individual’s death was a lifetime transfer of value within section 3 of the Inheritance Tax Act 1984.  However, the individual’s separate failure to draw any benefits from her personal pension before her death gave rise to an inheritance tax liability.

The ruling is important because in recent years, and following the 2015 introduction of “freedom and choice”, with the potential opportunities that arise under it to pass pension assets between generations, there has been a significant increase in those transferring their DB benefits to money purchase arrangements, typically set up as personal pensions.  Many of those transferring have been close to retirement.

What those who transferred may not have realised is that if they were in serious ill-health at the time of transfer, HMRC may take the view that a substantial inheritance tax charge applies if they die within two years of the transfer.

The Court of Appeal had found in favour of HMRC (see Pensions Bulletin 2018/42), but it now seems that as a result of the Supreme Court ruling HMRC will need to review its guidance, as indeed it has been asked to do, once this stage in the legal proceedings had been reached, by the Office for Tax Simplification in a report issued last July (see Pensions Bulletin 2019/27).


The case in question has been through the Courts over many years with rulings swinging between those favouring and those not favouring HMRC.  Now that we have heard from the Supreme Court there should at last be some certainty in this area.

We look forward to HMRC publishing revised guidance, hopefully in the near future, that will clarify that the act of transferring by itself should not expose the individual to an inheritance tax charge.  But at least until then those transferring who might be drawn into the net will need to tread carefully.

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Price inflation rises as ONS starts to return to a new normal

Price inflation figures for July were published on 19 August showing a turnaround in the 12-month inflation rate.  The CPI rate for July is 1.0% – up from 0.6% in June – and the RPI rate for July is 1.6% – up from 1.1% in June.  Both measures of inflation had been subdued during lockdown with fears growing that the UK was heading for a period of deflation.  It now seems unlikely that the all-important September measure of inflation will be negative.

During lockdown the Office for National Statistics has been operating a range of workarounds to allow for the fact that a number of the items in the basket of goods and services contributing to the computation of its consumer price statistics have been unavailable and that its price collectors have been unable to carry out their normal field visits to outlets to obtain prices to feed into this calculation (see Pensions Bulletin 2020/19).

On 17 August the ONS published detailed plans for resuming its field-based collection, in which it also discussed areas of concern and potential uncertainty that are likely to continue to impact the compilation of these statistics for some time to come.

With the lifting of restrictions, many goods are now available again (or at least can be appropriately substituted for) and price collectors are able to make site visits to collect prices.  The ONS stresses that the main principle underpinning its strategy for resuming price collection in the field is to ensure that price comparisons in current and future periods are unaffected by index levels and fluctuations over the lockdown period, with secondary principles to maximise sample size and minimise replacement of goods – and goes on to discuss how the ONS hopes to achieve these.

However, we are not quite back to “business as usual”.  Some outlets previously in the sample have not survived the crisis or will not be accessible due to local restrictions, and some lines of products (especially in the clothing sector) have now been discontinued.  There are also specific measures (eg increases in costs passed on to the consumer due to PPE requirements, the temporary reduction of VAT for six months from 15 July 2020, and the impact of the Government’s “Eat Out to Help Out” initiative during August), that will impact price inflation.


There had been concerns at the beginning of lockdown that a short period of deflation in the early autumn was potentially on the cards, perhaps exacerbated by how the ONS collected prices during lockdown.  This would have resulted in DB pension schemes facing additional liabilities.  It now seems that this threat is receding.

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PPF outlines its responsible investment strategy

The Pension Protection Fund has published details of its responsible investment (RI) strategy alongside its first RI report.

The PPF has three main priorities in its RI strategy – as follows:

  • Climate change – the PPF is looking to actively manage the impact of climate change and its related risks and opportunities through its investment approach by committing to and continuously implementing the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations, identifying and assessing the exposure of its portfolio to potential transition and physical risk factors across all asset classes in a phased approach, engaging with its fund managers to consider, manage and report to it on the climate-related risks and opportunities that its investments might face, and collaborating with industry peers and the wider investment community on climate change initiatives, including support for the TCFD, the Paris Agreement and Climate Action 100+
  • Stewardship – the PPF already exercises its voting rights and engages with the companies or issuers it invests in to make sure they‘re accountable and fulfil their obligations to shareholders and other stakeholders.  In addition, the PPF continuously monitors the ESG practices and stewardship activities of its managers.  It is now working to enhance its stewardship policy and practices to align with the revised Stewardship Code and has expanded its in-house ESG expertise
  • Reporting – the PPF says that it is a strong supporter of clear and relevant reporting across the investment chain.  As noted, it has published its first RI report alongside a number of other reports including those on voting and engagement

The report itself, after setting the scene, outlines the execution of the PPF’s key priorities before going on to look at future developments planned for 2020/21 and beyond.


The PPF’s report is covering the same sort of investment issues that occupational pension schemes may need to cover when they start to produce their implementation statements in relation to expanded statement of investment principles requirements from this October (see Pensions Bulletin 2018/36).  As such, it is useful to see how the PPF is addressing these issues.

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This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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