Pension providers are starting to hit back hard at suspected liberation firms to protect unwitting consumers being thrust into potential poverty in retirement, with Legal and General working on a legal interpretation of pension transfer rules to help combat such schemes.
The action comes as leading providers suspect that unscrupulous so-called pension liberation firms are encouraging deferred members of private schemes to cash-in and access their benefits early, risking hardship in later years.
Spokesmen for Legal & General, Aegon UK and Suffolk Life have stated they are taking decisive action, including blunt refusals and direct customer contact, to protect people against being stung by the huge tax penalties and stinging charges associated with pensions liberation.
Adrian Boulding, head of pensions for Legal & General, said: “We think nearly one in every 20 transfer requests to us from pension schemes are suspicious.
“We will not reveal what piques our suspicion, in case this gives liberation schemes an edge; but we ask certain questions and if we have suspicions, we alert the customer, inform them of the situation, and delay the process as long as possible.
L&G is also working on a legal interpretation of sections 95 and 97 of the Pensions Schemes Act 1993, which gives: ‘members the right to take a transfer from their existing scheme’; and that such a transfer must take place within six months or the provider incurs a penalty.
Mr Boulding said: “We drag our feet during that statutory six months, until we are certain of the scheme, and that the customer understands exactly what they are doing.
“It also gives us time to bottom out the legal question: whether it is right to transfer to a pension scheme that simply has an HM Revenue & Customs registration number, or whether the 1993 Act extends to mean ‘a scheme both registered and acting like a proper pensions scheme’.”
A spokesman for Aegon UK said: “We are really concerned about this and we get roughly 10 suspicious requests a week. This could derail auto-enrolment.
“It seems too easy to set up a pension scheme with an HMRC registration - but consumers don’t know the whole story. When we get suspicious, we inform the client, send them the guidance document from TPR and refuse to do the transfer.”
She said the provider has not received “a single complaint” from a customer alleging that Aegon has not offered protection from a pension liberation firm.
Greg Kingston, head of marketing for Suffolk Life, said the firm may refuse suspicious transfers after a long due diligence process, but added that Sipp providers have a difficult task as Sipps are “about choice and flexibility, and the act of refusing to do something does not sit comfortably”.
He said: “We are aware we could receive a complaint and we could risk delaying to a genuine scheme. But we believe it is the most responsible choice to make.”
Daniel Cawley, partner of East Sussex-based 121 Financial Services, said: “This is a positive development, and as long as it is not used as a tactic to delay ordinary customers, it is very welcome.
“Clients and the reputation of the financial services industry are damaged by these companies, and it’s the honest financial advisers that eventually have to foot the bill through our FSCS levies.”
The action taken by providers could see them facing penalties if they go over the six-month statutory limit or possible civil action brought against them. But their actions are being given the thumbs-up by regulators.
Data from The Pensions Regulator shows such schemes charge people between 20 per cent to 30 per cent, on top of the tax liability of 55 per cent that will be incurred under HMRC rules. This would see a person left with just 10 per cent of the value of their pension.
When informed of these delaying tactics and blunt refusals, a spokesman for TPR said: “The pensions industry needs to do what it can to protect members from these offers.
“We are encouraged to see providers and administrators using the due diligence steps set out in our action pack and embedding them into their processes.”
In point 17 of its memorandum of understanding with TPR, the FCA states that the two regulators “share an interest in detecting and disrupting pension liberation activity and in warning consumers of the pitfalls of such activity”.
A spokesman for the Financial Ombudsman Service, which cannot adjudicate on pensions liberation, said: “We would encourage consumers to be fully aware of what they are signing up to.”
