Personal Pension  

Pension liberation is a £600m problem at least: Aviva

Although the insurance industry may have saved £50m worth of pension savings from falling into the hands of pension liberation companies since January, an expert has warned insurers only deal with one-third of pension saving schemes.

In an interview with FTAdviser, John Lawson, head of policy at Aviva, said the pension liberation problem is escalating. He said that Aviva has stopped 250 people transferring their pensions to pension liberation schemes, and that this alone “amounts to millions”.

Although insurers have stopped the transfer of up to £50m in pension savings, Mr Lawson warned that pension liberation is a much bigger problem.

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According to Mr Lawson, insurers only deal with one third of pension savings and the remainder are with occupational pension schemes, and essentially anyone can set up the latter.

He said: “If we have seen £50m in the first four months of the year, there could be another £100m with occupational pension schemes but who knows if they have stopped them. There might even be another £20m-30m transferred to liberation schemes that are not on insurers’ radars at the moment.

“It was less prevalent in 2012 and we were less aware of the destinations then as we had less information on what might be one, less intelligence on what these pension liberation schemes might be. These have gone through the roof now.

“If we stopped £50m, how big is this problem? You could be talking about a £200m problem for every four months of the year.

“Last year I cautiously estimated it could be around £400-500m but activity is now accelerating and we need to put in measures upstream to stop this as it it getting out of hand.”

Mr Lawson believes this issue should be be tackled upstream and the supply needs “to be chopped off”. He said that currently anyone can set up an occupational pension scheme and he believes this area should be looked at. In particular he believes that if firms had to pay £10,000 to register the scheme, this would quickly address pension liberation.

He said: “I would appeal to the regulator very, very strongly to start regulating in two ways. One, to make it more difficult to set up a trust-based scheme, and have a proper registration process where the person setting out that scheme is vetted to see that what they are doing is genuine, if they have the skills and if the trustees have the skill and also they they have to pay a fee.

“The payment of a fee to go through that process would put a lot of people off. Another thing I would like to see is unauthorised payments being banned above a certain limit – above £2,000 for example. This stops the possibility that people can take their fund out out and pay a 55 per cent tax charge as the mechanics to do so won’t exist.”

HMRC has previously told FTAdviser there is “no legal loophole” to get around the rules, with only limited exemptions allowing access to pension money before age 55, such as in cases of severe or terminal ill health.