Pension freedom and choice reforms to come in from April will make life a lot easier for pension liberators, with insurers warning that the government needs to do more to stop them from using unsuspecting consumers.
Adrian Boulding, pensions strategy director at Legal and General, pointed to a ‘landmark’ pension ombudsman decision last month which he says was centered around the statutory right to transfer being linked to having a proper pension scheme to move into.
In the decision, the Pensions Ombudsman upheld a complaint against a pension liberation firm for failing to comply with a transfer request, but warned the claimant may need to take legal action to attempt to recover his fund of around £350,000 initially switched from a final salary scheme.
Mr Boulding told FTAdviser that at the moment insurers can usually stop “the dodgy ones”, but that from 6 April they will be obliged to transfer pension pots of those over age 55 into legitimate bank accounts, not knowing where the money will go thereafter.
“This is a problem we’re getting worried about, because we haven’t had any answers yet.
“The guidance guarantee should help and we’ll send material to customers to try and make them stop and think, but the reality is there’s nothing stopping people withdrawing money and passing it on to ‘whizzbang’ investment schemes.”
John Lawson, head of policy at Aviva, agreed adding that from April the onus will be off providers and all they will have to do is point retirees towards the guidance and offer the variety of new options on offer.
“Now schemes no longer have to go through the HMRC registration process it will be a lot easier for the pension liberators.
“Previously people would have taken a second thought about moving their money when faced with the various obstacles in setting up a Sipp or Ssas to invest in whatever Brazilian holiday resort or storage unit scam.”
He called on the government to start up a communications campaign targeted at over-55s, making them aware of the risks of investment schemes with purportedly stellar returns and making them aware that it’s incumbent upon them to spend their retirement money wisely.
“So far the government has just publicised the freedom and choice aspect of the reforms, without any warnings that this could be a field day for pensions liberators.”
A group of pension liberation decisions is expected out this month which should give a better idea of how the land lies with regards to providers versus people who wanted to transfer out, but were ‘blocked’ by their pension schemes.
At the start of December the Financial Conduct Authority warned that consumers were at risk of firms who are using the new freedoms to get people to transfer their pensions to achieve “better returns” and that many of the firms involved are unauthorised and “operating illegally”.
However, there has not yet been any official communications, with Mr Lawson suggesting linking them up with the imminently expected guidance guarantee rollout.
Consumer complaints regarding liberation have mostly been against insurers not complying with transfer requests on the grounds that it could be a pension scam, or in some cases that they have allowed such a switch.
Standard Life recently announced that it had blocked around 400 suspicious transfers, totalling almost £14m, with 18 such transfers blocked in the last month alone.
Jamie Jenkins, head of pensions strategy at the firm, warned that while providers will still be able to stop transfers from one pension to another, the reforms will mean people may simply release their cash and then pass it on themselves those running scams.
peter.walker@ft.com
