Self-invested pension providers seeking to prevent the transfer of client funds into suspected pension liberation schemes have been told to seek legal advice by the regulator, but it has crucially refused to confirm it will not take enforcement action over transfer refusals.
A number of Sipp firms and trustees are refusing to carry out pension liberation transfers, or seeking to delay any transfers, as debates rage over the requirements under law for providers to process requests in spite of the increasing spectre of ‘unlocking’ schemes.
Suffolk Life has told FTAdviser that it has attempted to stop a handful of transfers to alleged pension liberation transfer schemes, and last week Liberty Sipp stated that it was simply refusing to process requests - and has told clients unhappy about its stance to bring legal action.
The FCA confirmed to FTAdviser that Sipp firms would be under a duty to transfer funds to another scheme if requested by the member, even if they suspect the new scheme is engaged in so-called pension ‘liberaton’.
A source with knowledge of the FCA’s approach said the regulator is taking a back seat and is unlikely to reprimand firms that refuse to transfer to a pension liberation scheme. However, the regulator refused to confirm this was the case.
A spokesperson for the FCA did say that firms should seek “legal advice” and added that the regulator is aware that providers are “taking an active role in tackling this issue”.
The spokesperson said: “We know that this is a difficult decision for some SIPP operators, especially when members are being insistent. If an operator is concerned about transferring funds to a liberation scheme we would suggest they seek legal advice before proceeding.
“We would also suggest that an operator notifies the regulators and HMRC when there is a decision about a transfer. Liberation is an ongoing area of concern for the FCA and we recognise that firms are also taking an active role in tackling this issue.”
Pension liberation is becoming more common in the pensions industry as a whole, with John Lawson, head of policy at Aviva, previously telling FTAdviser that pension liberation is at least a £600m problem.
Clients can only release funds early if they meet strict criteria, such as having a terminal illness. Otherwise individuals are likely to face unauthorised tax charges of 55 per cent of the entire pot, with penalities potentially taking this as high as 70 per cent.
The FCA regulates self-invested pension providers and does not regulate occupational pensions, which are overseen by The Pensions Regulator.
TPR told FTAdviser that a trustee for an occupational pension scheme can refuse a transfer request on the grounds that the scheme the member wants to transfer to is not one of the destinations allowed for under the Pension Schemes Act 1993.
This includes instances where the trustee has reason to believe the receiving scheme is not defined as an occupational pension scheme.
However, if the scheme is registered with HMRC and does qualify as an occupational scheme, providers and trustees are legally obliged to process the transfer. Legal and General has said it is seeking a new interpretation of the 1993 act to challenge this.
A spokesperson for the Pensions Regulator said: “As our fraud action pack suggests, if the trustee of a particular scheme has concerns regarding a transfer request they may wish to seek their own legal advice. They may also wish to provide the member with the pension liberation fraud awareness leaflet.
“Otherwise, trustees have a duty to carry out a member’s transfer request where the legislative requirements are met. This includes a member having made a valid application requesting the transfer.”
