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Ombudsman ruling deals blow to providers in pension liberation fight

The Pensions Ombudsman has rejected members’ complaints in three pension liberation test cases but warned providers need to do more due diligence before blocking transfer requests.

Members of Standard Life, Aviva and Zurich pension schemes had complained providers and trustees were refusing to let them transfer out of the schemes and into suspected liberation schemes.

In the Aviva and Zurich cases, members’ complaints were not upheld because the receiving schemes were deemed not to qualify as legitimate pension schemes. However, in the Standard Life case the ombudsman ruled that although the member did not have a statutory right to transfer out of the Sipp, the provider did have discretion to permit the transfer, which it did not consider.

The ombudsman says Standard Life will now have to consider whether to use its discretion to allow the transfer out of its Sipp.

But the ombudsman says: “The ombudsman found that there was no statutory right to a transfer in any of the cases. But in none of them had the provider carried out the analysis to establish that.”

Hargreaves Lansdown head of pensions research Tom McPhail says the ruling will knock the confidence of providers and trustees in dealing with suspected scams.

He says: “It will make it harder for providers and schemes to refuse requests where they think that’s appropriate.

“It appears the statutory right to transfer overrides everything. Effectively you reach a point after six months where schemes are going to have to allow a request even if they suspect it is for pension liberation. It’s not a surprise, but it is an unfortunate development – it doesn’t make it any easier for the industry to combat pension liberation.”

Standard Life head of pensions Jamie Jenkins says: “My concern would be if our default position was to allow a transfer even where we had a suspicion, what I’d rather do is stop the transfer while we worked on that suspicion. The issue is once you’ve transferred you’ve given up the right to help protect that individual, they’re then at the mercy of whether or not that was a good thing to do.”

Fidelity Worldwide Investment retirement director Alan Higham says the decisions should help providers find the correct reasons for blocking transfers.

But he warns members will be more at risk from fraudsters after the Budget freedoms come into effect from April this year. He says currently providers act as a barrier if they suspect the receiving scheme, but once savers have the ability to cash in their entire pension pot it will be almost impossible to intervene.

He says: “Individuals have a statutory right to transfer out of a pension scheme where it goes to a bona fide pension scheme. This is the difficulty in combating the current form of pension fraud – the fraudsters can set up as bona fide. If the member insists, despite all the warnings given, on transferring there isn’t anything you can do to stop them going.

“But importantly it has to go to another registered scheme, that will all change after April. They will just say ’give me the money’, and then they can go off and invest in anything they like. At the moment we act as a barrier and quite a lot of fraud gets stopped at that point. But soon fraudsters won’t need to set up schemes to facilitate the transfer.”

In his conclusion to the cases, Pensions Ombudsman Tony King concedes providers, trustees, managers and administrators “find themselves in a highly unenviable position” where they could approve what turns out to be an unauthorised payment, or risk a member trying to exercise their right to transfer and complaining of financial loss.

“The strength of their reputation as an effective guardian of their customer’s money is also at risk”, he adds.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Christine Brightwell 9th January 2015 at 2:29 pm

    I think the important point here is “due diligence”. If providers are concerned that a transfer may be to an inappropriate arrangement they can see the deed and rules and ask questions. In such cases it may assist to copy the offending deed and rules to the Pensions Regulator. That deed and rules may be the last part of a jig saw for tPR to take action on those running such arrangement. Just a thought.

  2. Damned if they do, damned if they don’t.

  3. The FOS is supposed to be an impartial alternative dispute resolution system and not a consumer champion, QED the FOS SHOULD be accepting that a delay by a provider who explains the logic behind the delay should NOT be penalised in anyway even if they subsequently discover there is no pension liberation and then go ahead within the 6 month period.

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