Why clarity is needed over pensions liberation

Liberation schemes promise the early release of savings that are otherwise locked into pension schemes, and are not normally accessible before a member reaches age 55 without adverse tax consequences. These offers can contain high fees and the real risk of fraud.

The regulator will not give guidance as to what approach it might adopt in the event of the non-payment of a transfer

We hope that pensions liberation will become clearer for trustees over the next few months.

Despite the high profile campaign by regulators, trustees are in a difficult position. Charged with ensuring that fraud does not happen on their watch, they also have a duty to move a member’s cash equivalent transfer value on a legitimate request.

Checking out a scheme

It is notoriously difficult to tell if pension liberation fraud is occurring, but there are some early warning signs – the classic case is when a member is sent an unsolicited text, email or phone call that offers early access to their pension savings.

Schemes will need to do their own investigations. Enquiries can be made into the status of the receiving scheme, the scheme sponsor and the adviser.

A check should be made into whether the receiving scheme is registered with HM Revenue & Customs immediately before the transfer is made, as there is always a risk the scheme may lose its registered status before the transfer is made.

Trustees should notify the Pensions Regulator and Action Fraud of any suspected schemes so the authorities can build up an accurate picture of active liberation vehicles.

Schemes have a duty to pay a legitimate transfer on request, so they need to also educate the member about the dangers of proceeding with a potentially fraudulent transfer. 

A number of bodies have joined forces to provide literature to send to members who make a transfer request. This is available to print or download from the Pensions Advisory Service website.

The main problem for trustees is members very often understand that what they are doing is not really above board, but because they need access to cash now, they don’t care – or at least close their eyes to the risks.

Refusing transfer

When trustees have reason to believe the transfer is not a legitimate application, they can refuse it.

But as legislation prescribes time limits within which any request for a transfer must be actioned, trustees need to act promptly to ensure they have sufficient time to gather information and decide whether the transfer is legitimate.

In our experience, the regulator will not give guidance as to what approach it might adopt in the event of the non-payment of a transfer, as the facts of each case will be different. It regards this as a matter for trustees and their administrators to decide and indicates that trustees may wish to take legal advice. 

However, the regulator makes it clear that the due diligence undertaken by trustees is likely to be a crucial factor when it makes a decision on what action it might take in the event of a non-payment.

A summit organised by the government and regulator was held earlier this month, with a view to finding solutions to this issue. Short of giving schemes a wide discretion to refuse to pay a transfer, it is hard to see what more can be done by a simple amendment within the existing legislative framework.

Talk of reviving early access to pension savings plans – which would give members legitimate options to access pension savings – seems premature, given the lack of available time for further pensions changes before the end of the current parliament in May 2015.

More immediate relief is likely to come from a case brought by the regulator to establish whether a pensions liberation scheme is an occupational pension scheme and, therefore, presumably giving trustees a reason to refuse to pay a transfer on request. This case is back in court at the beginning of October.

Zoë Lynch is a partner at law firm Sackers