Insurers can by law defer pension transfer requests for up to six months where they suspect a pension liberation fraud, but could be stuck between a rock and a hard place if HM Revenue and Customs fails to shut the scheme during that period.
According to Adrian Boulding, pensions strategy director at Legal & General, providers could find themselves facing a no-win situation as investors may have claims whether a transfer goes ahead or not.
Speaking to FTAdviser, Mr Boulding said the recent decisions with the pensions ombudsman proves this is the case.
There are currently nine decisions with the pensions ombudsman - one is for allowing pension liberation to go ahead and the other eight are against providers who refused to transfer schemes to liberators.
Mr Boulding said: “The law, as it stands, allows us to defer transfers for six months without breaching the statutory rights of consumers. If we delay for six months and alert HM Revenue and Customs and The Pensions Regulator, hopefully in this time HMRC would have rescinded the scheme’s authority.
“After six months the position is grey. We are caught between a rock and a hard place – if you don’t pay the transfer, they may have a claim, if we do pay the transfer, they may have a claim against us.
“If we allow pension liberation to go a head, we think there will later be a regulatory backlash.”
He added that where the pension liberation scheme is illegal and a deliberate attempt at fraud, it is even harder for providers as they are not allowed to ‘tip off’ the consumer.
Mr Boulding said: “Where we have ones that we think are illegal, our recourse is alerting the statutory authorities but in terms of the consumer, we can’t tell them if we are aware someone is engaged with fraudulent action and we are not allowed to tell them as we would be ‘tipping them off’.
“So we have got a small number of consumers where we can’t tell them the particular method of liberation is fraudulent and we end up with irate consumes who don’t understand why their pension isn’t being transferred and they think we are just dragging our feet. They will find out eventually as the police will get involved.”
Mr Boulding previously told FTAdviser that a consumer who liberates their pension will end up with around 10 per cent of their pension fund, following a 55 per cent unauthorised payment tax charge and the pension liberator’s fee.
He added that while liberating a pension fund is poor value for money, the difficulty for providers is that, in the majority of cases, liberators are not doing anything illegal; “it is just an unauthorised payment”.
Mr Boulding said: “The consequence is there will be a tax charge for the individual as HMRC will close that scheme down. If the consumer is only getting 10 per cent then clearly it is not in their interest to liberate that.”
