Pensions minister Steve Webb says the Government is considering legislative changes to tackle pension liberation following a clamp-down by regulators and a series of arrests earlier this month.
Earlier this year, a coalition of regulators launched a series of new documents designed to warn people of the dangers of attempting to access their pension early.
Last week, the City of London Police announced it had made a series of arrests across the UK following a major investigation into pension liberation fraud.
Industry experts have called on the Government to go further by raising the barriers to entry for those who want to set up and operate schemes designed to encourage people to access their pension before age 55.
Speaking to Money Marketing, Webb says: “I am very open to exploring whether we have got the legislation right on this.
“But what we do not want to do is rush into doing something to stop a problem now and just create a new loophole or divert the activity. I sense some of the folk involved in this will just move on to the next scam if we are not careful.
“We do not want to tip anybody off as to how we are going to clamp down on these things but certainly we are looking at whether the current legislation gets us to where we need to be. It is very much on our agenda at the moment.”
Webb says the Government is also looking at ways to make it easier for trustees to reject transfers to suspected liberation schemes.
“I am looking at the role of trustees in all of this and whether we are giving them enough backing if they think something fishy is going on,” he says.
The minister is continuing to drive through a reform agenda focused on delivering value for money to pension scheme members.
As part of this, the Department for Work and Pensions announced last week its intention to ban consultancy charging for automatic enrolment pension schemes.
Webb says the decision was influenced in part by research conducted by Which? in January suggesting insurers were willing to accept consultancy charging fees of up to £450 per member for the first year.
The consumer organisation also found that almost two-thirds of people who are eligible for auto-enrolment and not currently contributing to a workplace pension would be more likely to opt-out if they were hit by high consultancy charges.
“Which? fed into us with their research and some of their findings were particularly scary,” Webb says.
“But what struck me was the way the entire market moved [following the consultancy charging review announcement in November]. By the end of that process we were knocking on an open door and most people seemed to accept a ban was the right way to go.”
While the formal process of consultancy charging has been banned, Webb says companies planning to pay more than the auto-enrolment minimum are free to reduce contributions in order to pay for advice.
He says: “I had a long conversation with [Scottish Widows chief executive] Toby Strauss about his intermediate proposition and one of the things that emerged from that conversation was the monitoring burden of a halfway house solution.
“I can say now if firms want advice, that’s great. You pay for it, it is transparent, we have a clear market for it and if it benefits employees then that is great.
“If firms want to recover some of the cost by putting less into the pension that is an option.”
The DWP also plans to consult on introducing a pension charge cap for default funds.
Webb refuses to give any indication of the level of cap the Government will propose but acknowledges the complexities involved in interfering with industry pricing.
He also suggests a price cap is necessary to make sure the proposed auto-transfer system for pension pots worth less than £10,000 does not result in consumer detriment.
“To make pot follows member work you have got to be confident that you are not transferring people from good schemes to bad schemes, but you also have to be clear you aren’t auto enrolling people into bad schemes in the first place,” Webb says.
“We think quality has a number of dimensions but costs and value for money has to be one of them.
“In the particular sphere of auto-enrolment and default funds, safeguarding people from the extremes will protect the reputation of automatic enrolment.
“But clearly it is a messy business to decide which charges you include and exclude and from that what the right cut-off would be.”