Regulation  

Ombudsman considers 9 liberation complaints against insurers

Pensions ombudsman Tony King has labelled pensions liberation as “undesirable and exploitative” as he considers complaints made by consumers against providers who have refused these transfers.

Adrian Boulding, pensions strategy director at Legal & General, told FTAdviser there are currently nine cases with the pensions ombudsman.

He said: “One is a claim that the insurer should have stopped the transfer as the consumer has lost a lot of money due to the tax charge and the fees.

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“The other eight cases are complaining that the transfer has been refused but consumers still want them to go ahead despite knowing about the charges.”

Speaking to FTAdviser, Mr King admitted the pensions ombudsman has received a “small number” of complaints about pension providers who have refused transfers.

He said: “Obviously because they are the first cases we’ve looked at we are taking great pains to ensure we fully understood the background. I have seen them referred to as test cases. Strictly they aren’t. They are just the complaints that have made their way to us and we will decide each on its own merits.

“Under the present pensions and tax legislation regime, in some cases what the scheme member is trying to do may not be illegal or improper, even though it may be unwise and/or the consequence of exploitation. It may even be a rational choice for someone in immediate dire financial circumstances.

“The people who complain to us, insisting on their right to transfer, are likely to be those who know what they are doing, or think they do, and who believe that they are on the right side of the line. People who have been duped or are knowingly acting fraudulently are much less likely to complain that they should be allowed to transfer.”

However, Mr King clarified that the pension ombudsman’s starting position is that pension liberation schemes “are bad for people”.

He said: “At the least, pension liberation is not in their medium and long term interests and is likely to lumber them with a significant penal tax bill. At worst, the individual concerned will be participating in a fraud.

“The public should run a mile from anyone who says that they can arrange for their pensions to be accessed before age 55. The people selling these schemes are taking advantage of people’s financial vulnerability in order to rake off large sums for themselves at the expense of their ‘customer’s’ financial future.

“Whatever we decide in the cases that we look at, the fact remains that these arrangements are undesirable and exploitative.”

Mr Boulding added that despite explaining to customers about the 55 per cent unauthorised payment tax charge from HM Revenue and Customs and the 30 per cent fees that pension liberators take, some customers are still not deterred.

He said: “If they have a £40,000 pension pot, they would only walk away with £4,000. They want the money for short-term reasons and this is the problem with the current economic climate