The problems at Freedom Sipp have highlighted concerns over transferring orphaned members to new providers.
Freedom Sipp was wound up recently after a dispute with HM Revenue and Customs over outstanding VAT payments, potentially leaving as many as 350 members stranded. Freedom Sipp closed for new business in September 2008.
HMRC is allowing any Freedom member to transfer to a new provider and Money Marketing understands that no member will be hit with 40 per cent tax liabilities.
But IPS Partnership, which has taken on a number of Freedom members, says the transfer process is fraught with problems if the company is in the process of being wound up.
Business development director Richard Mattison says: “It took an enormous amount of work to bring the Freedom members over. It is a paperwork exercise to move everything across but nobody at Freedom did anything, so it all ground to a halt. We spent a lot of time chasing it all up.”
He says the problem is the lack of an active provider helping the receiving provider with the transfer means the admin work can be long and drawn out.
Liberty Sipp, another provider that has taken on Freedom Sipp members, also had protracted transfer problems. Director John Fox says: “We have taken on seven cases which we did thorough due diligence on but it has taken over 12 months in some cases.”
Another concern is over clients left with riskier assets that other providers are unwilling to take on.
Hornbuckle Mitchell has turned down some Freedom members due to the nature of some of their French property assets.
Chief executive David White says: “The risk that any provider has in taking a transfer is in understanding the assets in the scheme. We did get requests from Freedom to take members and there were assets in there that we would just not take on as a provider.”
AJ Bell has also taken on Freedom members and marketing director Billy Mackay says there could be members with riskier assets who get left behind but he cannot envisage the regulators not coming to their rescue.
He says: “I think the Freedom book will be run down. HMRC wrote to us and assured us that it is relaxed with transfers across. It is not that difficult to move members, there is work involved but Sipp-to-Sipp asset transfers have been happening for years.
“The Freedom wind-up will continue until you are left with a handful of Sipps which providers are uncomfortable to take on and then it is down to HMRC to deal with them.”
There is a general consensus among providers that whatever happens to any remaining Freedom members and any orphaned members from other collapsed providers, HMRC, The Pensions Regulator and the FSA must all play roles in making sure members are not affected.
Mattison blames the regulator for many of the problems on the Freedom transfers. He says: “The regulators have not thought through this process well enough. The problem with Freedom is that the FSA and lawyers have taken all of the members’ paperwork away, so nobody knows where all the files are. We have achieved transfers but we need the documentation to tell us how much to resume paying out but that information is missing. It is all a mess.”
White says: “I hope the regulators will be more clued up after the Freedom situation. Hopefully, by the end of this, there are not too many adversely affected members and you would hope HMRC would take a reasonable view of extricating them from the Freedom Sipp and not tax them accordingly.”