Liens and guaranteed transfer values

Under the new provisions regarding cash equivalents introduced in the wake of the Pensions Act 1995 members are guaranteed that the amount of any cash equivalent quoted to them will be payable if they apply for the transfer of that cash equivalent within three months of the guarantee date.

An important question for employers to address is what happens if the Rules of the Scheme allow an employer's lien against the member's benefits for a criminal, fraudulent or negligent act or omission, which the employer proposes to exercise? If the member's benefit is forfeited before the transfer is made, then the cash equivalent may be reduced, to nil if necessary.

If the member does not dispute the amount owed this is straight forward. However, if the amount owed is disputed, a lien cannot be exercised unless there is a court order or an arbitrator's award. The trustees may delay making the transfer if court proceedings, which may lead to forfeiture, have been started by the employer within 12 months of the date when the member ceased to be in pensionable service. In those circumstances, delay is permitted for up to 3 months after the conclusion of those proceedings, including any appeals. Therefore, where there is any possibility that employers may wish to exercise a lien under scheme rules, they should make certain that court proceedings to enforce the amount owed are started as soon as possible, and certainly within 12 months of the member leaving. Failure to do so may enable members to frustrate the lien provision by using their statutory right to insist upon the transfer of their guaranteed cash equivalent.