Slick marketing campaigns and cold calling carried out by unregulated advisers are the driving force behind pension liberation owing to the large commissions they receive which can sometimes surpass 20 per cent, Barnett Waddingham has said.
Speaking to FTAdviser, Ollie Clymo, associate at Barnett Waddingham, added that the downside of large commissions for the adviser and a 55 per cent tax bill are “frequently hidden” or completely omitted from marketing material.
He said: “Sometimes the investment products themselves are bogus and victims later lose all their pension savings to a ‘failed’ investment company.”
Andrew Roberts, head of small self-administered schemes at Barnett Waddingham, added that the firm is seeing more pension liberation with defined benefit schemes than with self invested pensions or Ssas.
Mr Clymo said the reason for this is there is a tendency for Sipps and Ssas “to be favoured by high net worth clients” who are more savvy than those with a company pension scheme.
He added: “Because of regulation, Sipps and personal pensions do not attract this as they are under the FCA’s jurisdiction whereas with occupational schemes anyone can set one up.”
Although Barnett Waddingham do not have any figures as to how much pension liberation they have stopped, Mr Clymo said that the industry figures of £500m to even £1bn “are not entirely off the mark”.
He said: “Trustees who are asked to transfer pension funds to these liberation schemes face a tough decision.
“Liberation schemes are usually fairly easy to spot if proper due diligence checks are carried out, as there are often many warning signs apparent to the experienced eye. The difficulty is navigating the legal obstacles whereby trustees are obliged to make the payment despite evidence of suspicion, or face potential legal action if they refuse.
“The biggest problem the industry has is the scheme says the trustees must pay.”
There are currently a number of complaints against firms who have either prevented a transfer to a suspected liberation scheme and also from those who have transferred fund to a liberator and as a consequence now has a depleted fund.
Mr Clymo said: “The ombudsman said it’s probable all complaints of refusal to transfer will be upheld because if somebody is so bloody minded enough to complain, and go through the ombudsman they are sufficiently aggrieved and innocent and caught inappropriately.”
Another issue Barnett Waddingham have encountered is how pension liberators are attempting to mock legitimate schemes by having professional indemnity insurance and by sending them details of the trustee and rules.
Mr Clymo said: “We ask to check on the trustees and rules processes, and it rouses suspicion when they send on this [information] without it being asked for. That is not typical behaviour so they make alarm bells ring at the start.
“We then start asking for evidence on their registration but fraudulent schemes are now registering with the ICO.”
He added that fraudsters are even using the radical pension changes announced in the Budget as further leverage.
Mr Clymo said: “The fraudsters love the Budget announcement as they are using it as publicity that anyone can now access their pensions and take it at anytime and leaving out all the restrictions that will apply.
“HMRC now has significant powers it can wield and if it does, it can now shut down the liberation industry but needs them to respond and use those powers effectively.”
