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Tom McPhail: The pension liberation battle is set to get tougher


Pension liberation fraud is a problem that is here to stay. There are various things that can be done to mitigate it but there are pitfalls ahead. 

Pension liberation fraud is now siphoning millions of pounds out of the pension system and it is unlikely to stop. What is more, it seems as if the industry is going to be asked to make some very difficult judgement calls for which it may be subsequently held accountable to the pensions ombudsman.

Money Marketing reported last week that the ombudsman is set to rule on nine fund transfer cases, eight of which are understood to involve complaints from savers who have been refused a transfer to a suspected liberation scheme. The final case relates to a complaint about the pension scheme administrator allowing the customer’s funds to be transferred to a liberation scheme.

The ombudsman has already indicated firms may not like some of the judgements it is about to make.

The industry would love to have a “watch list”, published by the authorities, of companies believed to be operating fraudulent schemes. This would make it easier for firms to block transfers to risky firms. The alternative would be a “safe list” of companies known not to be a problem. Neither of these now looks likely to happen.

In theory, the industry can set up an informal watch list to share data among friends’. In principle, it is acceptable to share confidential data where it is being done for prevention of fraud purposes, without being in breach of the Data Protection Act. 

The problem is that often it is difficult to even prove pension liberation is actually fraud – and if it isn’t fraud, firms may not then have any protection from having breached the act.

To prove fraud, firms need to be able to demonstrate the pension holder has been told a lie about their pension benefits, and especially the tax treatment of those benefits. Firms also need to be able to prove the administrators have acted improperly and that the money has been misinvested or misspent. Fraudsters aren’t renowned for their record keeping, so this is not easy.

The pensions industry seems to be united in the view that HM Revenue & Customs must make it harder to register a pension scheme, and that the vetting process needs to be more immediate. 

The role of pension administration and trusteeship also needs to come under greater scrutiny, with industry participants having their credentials checked more thoroughly. HMRC seems reluctant to take on this responsibility.

If you think it’s bad now, the Department for Work and Pension’s pot follows member initiative, with its non-consensual transfers of money around the system, could be about to make the problem a whole lot worse. 

Creating millions of new transfer transactions without member consent looks like a recipe for disaster. The DWP must urgently rethink this policy before it is too late.

Tom McPhail is head of pensions research at Hargreaves Lansdown


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There is one comment at the moment, we would love to hear your opinion too.

  1. I agree with Tom. One of the advantages with NEST at the moment is that a member cannot transfer out of NEST (although this looks likely to change), for me, it would have been a selling point FOR NEST to some of my employer clients who will be autoenrolling in the next year or so as I would have suggested an advised model for management using a GPP probably with a non advised scheme with NEST to run alongside, with the employer knowing that the employees money could NOT be stolen through liberation with NEST and that anyone in the GPP would have had advice.
    With all the messing around with auto enrolment, despite being heavily involved in group business in the early 00’s I feel likely to shy away from the mess which is auto enrolment now after all. Pity because I was good at presenting to groups of staff and talking at their level (whatever that might be) I think.

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