30 October 2013 - Post by:Emma Bichard
Are pension scheme trustees stuck between a rock and a hard place? It would seem so, as following the Pensions Regulator’s warnings trustees must decide whether to comply with their duty to facilitate a valid transfer request or delay suspicious requests risking regulatory action. But how easy is it for trustees to be sure pension liberation fraud is taking place? Not very is the answer we have received from trustees and administrators who have reported numerous difficulties in investigating receiving schemes. That means that trustees rarely feel they have sufficient evidence to delay a request, especially when faced with the risk of regulatory action.
In short pensions liberation involves the transfer of a member’s pension savings to a scheme which will allow them access before age 55 or to take more of their pension as a lump sum than is allowed tax free. This can result in hefty tax charges, not to mention the high fees charged by these schemes to make the transfer.
Earlier this year the Pensions Regulator joined a number of government agencies to announce a campaign against pension liberation fraud (more information can be found here), bringing the issue to the top of many trustee agendas. Trustees are keen to prevent members becoming victims of pensions liberation, but it is notoriously difficult to uncover. The Pensions Regulator has issued guidance and a number of resources to help trustees and administrators to identify pensions liberation fraud and this can be found here. The trouble is that there is little comfort for trustees if they choose to delay a transfer in breach of the statutory requirements.
The Regulator’s advice is for trustees to carefully investigate any suspicious requests in order to have sufficient evidence to support any delay. Good advice, although not without its challenges according to our trustee clients. One challenge trustees have been facing is confirming whether a scheme is registered with HMRC. Hopefully this particular problem will improve now that HMRC has updated its registration process and confirmed it will now respond to requests without seeking consent from the receiving scheme (latest news from HMRC). The only problem is that this confirmation could be delayed by up to three months should HMRC need to investigate any concerns, so trustees should put in their information request as early as possible.
Another hurdle for pension scheme trustees was highlighted in some recent High Court cases, that of establishing whether the receiving scheme is in fact an occupational pension scheme. Although some clarity has been provided by the Judge’s decision, trustees continue to face difficulties confirming whether an employment relationship exists, particularly if the receiving scheme and the member fail to cooperate.
Finally trustees are advised by the Regulator to warn members about pensions liberation in the hope that this will discourage a fraudulent transfer. However in our experience members are often aware of the risks and understand what they are doing is not completely above board, but their desire for cash now, not when they retire is too great. Faced with such desperation and little assistance from the member in building a viable case against a suspected liberation scheme, trustees may feel they have little option but to make the transfer.
Despite these challenges, investigating transfer requests and properly documenting the process is the only way trustees can navigate between the rock and the hard place.
Emma Bichard is an associate at Allen & Overy LLP.