Despite the new pension freedoms, pension liberation remains a huge problem, with providers telling FTAdviser they have blocked millions of pounds of transfers to alleged liberators.
Speaking to FTAdviser, Standard Life’s head of pensions strategy Jamie Jenkins warned that there has been a steady increase in pension liberation over the last 18 months.
Over the last few years, Standard Life has blocked a total of 420 cases, totalling £15.1m as at the end of June 2015.
Two years ago, Aviva’s head of policy John Lawson also cautioned that pension liberation was at least a £600m problem and Mr Jenkins believes this is still the case.
He said: “People have quoted figures of £500m, which is relatively consistent, but no one is exactly sure of the figure.
“When liberation was first started it was not recorded. Plus there is the ‘second liberation’ market that is very difficult to track - for example people will transfer to a registered overseas pension scheme which could change the way it distributes benefits down the line and become liberation.
Mr Jenkins added that with this secondary market it could be a £500m, £600m, or even £700m problem.
In the first half of this year, Aviva, including Friends Life, declined around 110 transfers, worth more than £3m.
Mr Lawson commented that the firm takes a tough stance on pension liberation schemes and will continue to decline transfers which it believes could be detrimental to our customers.
“People have worked hard all their lives to build up their pension savings and we have a duty to protect those savings on our customers behalf.”
A spokesperson for Scottish Widows told FTAdviser it has blocked around £400,000 worth of liberation cases in this first half of this year.
Chris Smeaton, director of commercial and strategy at James Hay, said: “So far this year we’ve had to block just six suspected pension liberation cases, all of which were for pots well below our average case size of £200,000.
“Our screening processes are robust and scammers will be aware of that – they tend to try a door and if they meet with strong resistance they move on to another door and another until one of them eventually gives.”
Mr Jenkins cited two types of scammers – those targeting over 55s to get their cash lump sums and those who want to liberate the pensions of those who are under 55. “It’s been fairly steady since the months since the pension freedoms for both pre-55 pension liberation and the threat of people being targeted by scammers.
“There is still a demand for both and it is the vulnerable who are targeted. They are not aware of the tax charges nor the fees. They are convinced [by the scammer] that there is a loophole in the law that will avoid massive tax charges but there is no loophole.
“HMRC will catch you with you eventually and then the charge will be even more.”
Those who access their pension prior to age 55 are likely to pay a 55 per cent tax charge, however this could increase to 70 per cent when taking into account other charges.
Mr Jenkins added that liberators have far more work to do to liberate a scheme for someone under the age of 55. “The scammer has to fool the member, register with HMRC and the Pensions Regulator and fool the scheme – that is quite a challenge.”
However, for those aged over 55, the scammer just needs to fool the member.
“It may be a perfectly legitimate investment opportunity that is aggressively promoted. The best thing we can do is raise awareness and ask questions, getting people to think about not making decisions without financial advice that would sign away their life savings.”
Data published last week by Citizens Advice revealed that two in five staff members have seen people repeatedly targeted by pension scammers trying to get their hands on cash lump sums. It showed that a further one in ten of their staff saw people who had either responded or fallen prey to a scam.
donia.o’loughlin@ft.com
