An upcoming spate of decisions from the Pensions Ombudsman could “open the floodgates” for complaints over providers delaying transfers due to pension liberation suspicions, Neil MacGillivray, chairman of the Association of Member-Directed Pension Schemes, has warned.
The Pensions Ombudsman recently revealed it is currently reviewing close to 40 complaints from savers whose pension provider refused or substantially delayed a transfer due to a belief that the scheme to which funds were being transferred was engaged in pension liberation activity.
A further handful of complaints are from people who did transfer but into arrangements that were subsequently effectively frozen due to regulatory action.
Speaking to FTAdviser, Mr MacGillivray, head of technical support unit at James Hay, said: “If a Sipp provider has taken what would be regarded as reasonable steps and it [an ombudsman decision] goes against them for delaying the transfer then really it is going to open the floodgates.
“It will be very interesting to see what the outcome is.”
The Pensions Transfer Agreement states providers can delay a pension transfer for six months; if the ombudsman finds delays “are against the client and there’s no justification for doing it, their hands are tied”, Mr MacGillivray added.
He said: “What you may find is some may go in favour and others against and once you see the nitty gritty in the detail as to why this has come about and why this has happened, it could be quite scary.
“What we hear through the grapevine is that firms behind pension liberation are actively encouraging members to go to the ombudsman and complain about the delays.”
‘Pension liberation’ is the name for the process by which people release pension funds before retirement and convert benefits into cash by transferring funds to a new scheme that either provides a direct payment or offers loans which the member is notionally required to repay.
Unless in exceptional circumstances such as terminal ill health, savers are prohibited from accessing funds before their retirement date. Those that do so face tax charges of 55 per cent and additional unauthorised payment penalties that could see them lose 70 per cent of their fund value
A number of pension and self-invested pension firms have confirmed they 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.
Liberty Sipp, for example, told FTAdviser last year that it was simply refusing to process requests and has told clients unhappy about its stance to bring legal action.
Friends Life revealed last year it has declined over 500 requests to transfer clients’ pensions to pension liberation schemes, with the total transfer value of these requests being over £12m. Aviva has stopped 250 people transferring their pensions with a total value that “amounts to millions”
Suffolk Life previously told FTAdviser that it has attempted to stop a “handful” of transfers to alleged pension liberation transfer schemes.
Adrian Boulding, pensions strategy director at Legal & General, said insurers could be stuck between a rock and a hard place if HM Revenue and Customs fails to shut a liberation scheme during the six-month period they have to enact to a transfer request.
Providers could find themselves facing a no-win situation as investors may have claims whether a transfer goes ahead or not and the recent pensions ombudsman decisions prove this is the case, Mr Boulding added.
Mr Boulding also said that if providers allow pension liberation to go ahead, “we think there will later be a regulatory backlash”.
The Financial Conduct Authority told FTAdviser that Sipp providers seeking to prevent the transfer of client funds into suspected pension liberation schemes should seek legal advice. Crucially, the FCA refused to confirm it will not take enforcement action over transfer refusals.
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 liberation.
Earlier this month, Margaret Snowdon, chairman of the Pensions Administrations Standards Association and director of provider JLT Employee Benefits launched the Pension Liberation Industry Group.
The group is developing a code of practice on due diligence for pension transfers, with the aim of launching it in April, Ms Snowdon said.
Speaking to FTAdviser, Ms Snowdon said: “We are not asking for the regulator or HMRC to endorse the code but to agree that it could be meaningful and in their view will improve matters. They are seeing it, invited to make comments [and are] reviewing it.
“This is the next best thing to an endorsement.”
