Leading insurance, savings and investment provider, Aviva, are joining several other industry voices to call for stricter rules on pension transfers to stop the spiralling number of people being persuaded by fraudsters to access their retirement savings early – at a huge financial cost.

Despite increasing awareness about the tactics being employed by so called pension liberators, the company claim they are continuing to see a rising number of suspicious pension transfer requests, and is declining transfers where necessary. By the year end, Aviva expects to have stopped around 600 UK cases with a value of approximately £14m, which suggests that the combined insurance industry may be stopping around £150m.

For consumers, liberating a pension before retirement will not only significantly deplete their retirement funds but will also incur charges of around 55%, further reducing their savings pot. Transfer services come with significant fees of 10% to 15% of fund value meaning consumers could in total lose 70% or more of their pension fund.

To help to combat these dangerous processes, Aviva have suggested that the following steps should be undertaken by consumers and the industry as a whole:

  • A more rigorous registration process for trust-based schemes would prevent the set up of many liberation schemes. For internal UK transfers, liberation schemes tend to be trust-based occupational schemes because they are easy to set up. Anyone can set up a trust-based scheme but only regulated firms, such as insurers or banks, can set up personal pensions. A registration fee could fund the process and be set at a level to discourage all but bona fide schemes. Aviva suggests £5,000.
  • All trust-based schemes should be required to appoint an independent trustee, who is registered to act in this capacity by the Pensions Regulator. This would restore the pre-2006 position applying to small self-administered schemes (SSAS), where an independent professional trustee was required to prevent scheme assets being misappropriated.
  • The rules on unauthorised payments should be tightened to ensure that they are not used beyond their original purpose. “Unauthorised payments” are allowed within the Finance Act 2004, but were intended to cope with administrative anomalies.
  • Providers should be able to delay transfers indefinitely on condition that they have reasonable grounds and that these are reported to government agencies. An appeal system could be established through the Pensions Ombudsman Service.
  • Tighten up the overseas transfer regime by only allowing transfers to non-EU countries where the person can prove that they are now tax resident in that country. And within the EU, explore a temporary agreement via the European Commission/EIOPA with a view to legislating in the longer-term.

Discussing the findings and their calls to action, Aviva’s Head of Policy, John Lawson, said:

“Action needs to be taken now to stop pension liberation ‘at source’ rather than at the point where providers are being inundated with transfer requests from customers who mostly don’t understand how much money they stand to lose. Fraudsters are not going to stop when they see an opportunity, so it’s essential that we make it impossible for them to operate.”

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