Industry figures have said the guidance guarantee and independent advice are important to prevent scheme members being lured into punitive liberation schemes by the prospect of increased retirement flexibilities – a problem brought before parliament this week.
The Conservative MP for Amber Valley, Nigel Mills, posed a question at Monday's work and pensions committee on the impact of enhanced pensions flexibility from April 2015.
Jamie Jenkins, head of pensions strategy at Standard Life said "a much bigger risk" came from these liberation schemes, encouraged by the opportunity presented by the defined contribution changes.
Jenkins’ comments before the committee echoed that of industry experts responding to recent legal action by the Pensions Regulator to close down five pension liberation schemes involving 1,400 scheme members.
Helen Powell, professional support lawyer counsel at Allen & Overy, said that during the High Court proceedings one defendant argued against the regulator’s action on the grounds that the effect of the Budget changes from April would effectively constitute government sanctioned liberations. “The court very firmly rejected his argument, there are clear lines being drawn,” said Powell.
“But you can see that this is where the real importance of high-quality guidance under the guarantee comes in and the importance as well that members should follow on and get advice personalised to their circumstances,” she added.
Duncan Buchanan, partner at Hogan Lovells, also identified new pensions flexibility as a key target for scams. “With the Budget changes there will be a change of focus for the target group of pension scams, who will now divert their attention to the over 55s,” he said.
The watchdog's intervention
High Court proceedings by the regulator against the schemes began in July 2013. Transfer values to the schemes were estimated at £134m from more than 1,400 individuals, many of whom were targeted via cold calling.
“It’s the biggest case we’ve taken in terms of volume of assets,” said the regulator's executive director for DC, governance and administration, Andrew Warwick-Thompson. “The total passing through different liberation and scam schemes is at least £500m and that’s just the tip of the iceberg,” he added.
Both members and trustees are at risk from pension liberation and other scam operations. While members face a 55 per cent tax charge on the value of their transfer, an 11 per cent punitive charge for unauthorised transfers, and also the fees charged by the liberation or scam operator, trustees are vulnerable to the fallout from unhappy members.
The regulator-led scorpion campaign aims to educate providers, trustees and members on the potential dangers of pension scams through targeted communication.
Warwick-Thompson said that enhancing member awareness was critically important to the overall fight against scams, adding: “The member makes the decision about when to transfer. If we deliver clarity to the market we will have the best possible chance of disrupting scam schemes."
