When people talk about pensions liberation, they appear to imply unauthorised payments or perhaps reciprocal loans. However, the problem has become much wider. Within the UK, we are now seeing increasingly sophisticated arrangements where some customers may end up with nothing at all.
This year, I estimate Aviva will stop £15m worth of suspect transfers covering over 600 customers, an eight-fold increase on 2012. Across the insurance industry alone, the numbers will be at least ten times this.
The pensions minister recently estimated that including occupational pensions schemes, £420m in total had been liberated. These are the ones the Government knows about, and does not include suspicious transfers to Qualifying Recognised Overseas Pension Schemes.
With pensions liberation reaching epidemic proportions, you might expect some tougher action from the Government and regulators? But that isn’t happening as quick as is needed. Instead, the pensions industry, both insurers and genuine trustees of occupational schemes, are left in limbo.
There have been initiatives such as the ‘Scorpion’ education and awareness materials, and HM Revenue & Customs now vets schemes before registration.
But equally, there has been procrastination. A recent court case that tested whether schemes were occupational pensions wasted months in the battle against these liberation practices.
Now the industry is being told not to be “over-enthusiastic” in stopping transfers because of the potential implications in denying customers the right to a transfer.
In some cases, we believe customers are facing high-pressure sales techniques to transfer. I genuinely believe many of these customers would not want to transfer to these schemes if they fully understood the financial consequences.
The vast majority of these cases are transfers to occupational pension schemes. Occupational schemes can be set up by anyone, unlike personal pensions which need a regulated firm behind them.
Although regulated individuals are not beyond scamming, at least they are governed by a regulator that will take swift action to curtail their activities. Applying to the FCA for authorisation is enough to put the scammers off. They do not want their name on a register and a regulator prepared to take tough action against them if they step out of line.
The problem lies with occupational pension schemes, and so the solution lies there too. Occupational schemes should need the equivalent of a regulated individual, in their case an independent trustee, involved before they can be established.
Large occupational pensions have long employed independent trustees because it is good practice to do so. Having an independent person on the trustee board reduces the possibility of conflicts of interest arising, whilst bringing external scrutiny and expertise.
Prior to pensions simplification, small self-administered pension schemes were required to have a ‘pensioneer’ trustee, to ensure the scheme performed its administrative duties properly. Many of the responsible operators in the SSAS community would welcome the return of independent trustees, as they have now realised that member trustees do not have the skills and knowledge required.
The involvement of an independent trustee would help stop both the routine use of unauthorised payments and the new forms of liberation which involve inappropriate investments.
The Pensions Regulator would need to maintain a register of independent trustees and ensure that every person allowed onto that register satisfied a ‘fit and proper’ test first.
This will come at a cost, but I see no reason why schemes, or indeed the independent trustees themselves, could not pay a registration fee.
John Lawson is head of policy at Aviva