High Court ruling ramps up fears over pension liberation

The threat posed by scammers targeting pension pots has increased since the introduction of freedom and choice. Providers blocking transfers has been a prominent line of defence against pension liberation scams by stopping members moving their money into suspicious or fraudulent schemes.

Royal London had not carried out a member’s transfer request because the insurer did not agree that she had a statutory right to transfer and was not satisfied about the scheme she was transferring into or the level of advice received.

The provider’s decision was upheld by the pensions ombudsman in June last year. However, the High Court last week ruled that the claimant did have a statutory right to transfer.

Many in the industry raised concerns the ruling would make it more difficult to prevent liberation scams by blocking transfers to suspicious schemes. Mick McAteer, co-director of think-tank the Financial Inclusion Centre, described the ruling as “good news for fraudsters”.

Arron Slocombe, partner at law firm Baker & McKenzie, said: “In many respects this is a ‘good’ outcome for pension plans – at least in terms of there being a very clear outcome: the member got what she wanted, and this pension plan… does not have to make an unenviably difficult discretionary decision about whether a transfer is in their ‘best interests’.”

However, he added: “Some trustees though will be disquieted, as this removes a potential protective cushion around members wishing to take transfer, in a market where fears of pension liberation are not going away.”

Ben Fairhead, partner at law firm Pinsent Masons and lead legal adviser to Royal London, said: “What I suspect this will do is encourage scammers to put more pressure on individuals and providers to move pensions out into the relevant receiving schemes.”

He added that this raises the question of whether the law needs to be changed, saying: “Do we change the law to change the test for statutory right to transfer?” 

Fairhead said providers would still be advised to carry out thorough due diligence on receiving schemes when transfer requests come in.

“Providers have really got to test and probe and make sure, if they have suspicions, that they are flagging their concerns and sending the appropriate warnings and literature.”

Despite this, Sean Browes, senior trustee representative at professional trustee company Dalriada Trustees, said: “There’s only one way to stop this, and that’s to stop the funds at source. If you stop the transfers, the fraudsters can’t get their hands on them.”

Provider reaction

Kate Smith, regulatory strategy manager at provider Aegon, said providers have a duty to help protect members from falling victim to fraudsters.

“Unfortunately there will always be fraudsters who attempt to separate people from their life savings. Pension providers have a duty to help protect their customers and ensure that when a customer asks for their money to be transferred, that it is to a legitimate scheme.”

She added: “In those rare occasions where customers and pension providers disagree on the trustworthiness of the receiving scheme, additional clarity on each party’s responsibility may be helpful.”

A spokesperson for provider Scottish Widows* said its systems were capable of recognising scams.

“We have controls in place to identify any potential pension liberation activities and are part of the industry-wide group following industry standard practice,” the spokesperson said.

And a spokesperson for provider Aviva said the details of the case would be looked at in detail: “We will be examining the details of this case to understand if it has any implications. We remain committed to ensuring that we focus on fair outcomes for our customers.”

*Correction: An earlier version of this article mistakenly said a spokesperson was from Scottish Life. The article has since been updated.