Many pension schemes have experienced a recent increase in the number of transfer value requests received from Members. Understandably there is widespread concern amongst the industry that this is due to members being tempted to transfer their defined benefits to one of the many pension liberation arrangements that have sprung up over recent times. In fact, the Pensions Regulator has estimated that around £400m has gone in pensions liberation fraud. The Regulator is now considering complying with recent calls for it to compile a watch-list of 'questionable schemes' to assist trustees and administrators in their efforts to stamp out this problem.

What are they?

These pension liberation funds tempt members with the promise that after transferring their benefits they will be able to circumvent many of the restrictions placed on their benefits, for example they may be promised access to their benefits before attaining age 55.  Under the Finance Act 2004 such a payment would generally be an unauthorised payment, an exception to this being that scheme members in certain occupations, for example professional sportsmen, are given an earlier minimum retirement age.  The consequence of an unauthorised payment is an unauthorised payment charge of up to 55%1.  The trustees of a scheme can also be subject to a scheme sanction charge.

It is very unlikely that incurring a tax charge of 55% will be in the interests of any members and accordingly it is vital that scheme trustees are mindful of this trend and take action to ensure their scheme members are not taken advantage of.

What can you look out for?

Whilst this is not an exhaustive list, some things to keep an eye out for include:

  • Members pressurising trustees to speed up the transfer;
  • All or part of the benefits to be transferred overseas;
  • Members mentioning accessing benefits before age 55;
  • An increase in a number of requests to transfer benefits to a specific (previously unheard of) recipient arrangement;
  • Is the proposed recipient arrangement registered with the HMRC?  If so – is it newly registered?; and
  • Who is the sponsoring employer of the proposed recipient arrangement? – Is it a new company or a dormant company?

Of course one or more of these factors being present doesn't automatically indicate inappropriate intentions, it merely warrants further investigation of the proposal and further correspondence with the member.

How can members be helped to avoid this pitfall?

Many large administration services providers already have their own procedures in place to ensure members are not duped, these include:

  • Issuing explanatory leaflets to accompany CETVs;
  • Referring to the leaflets within the personalised information so the leaflets cannot be dispensed with by rogue advisers/providers;
  • Individual discussions with members regarding their intentions
  • Many trustees are also issuing members with the Pension Regulator's information leaflet on Pension Liberation Fraud.

So what if you, as a trustee, have concerns about a transfer request?

Who is entitled to receive a statutory transfer value:

  • A member who has a minimum of two years' pensionable service; or
  • A member who has between 3 months' and 2 years' pensionable service and who is not entitled to a deferred benefit.

Unfortunately trustees do not normally have the power to block a transfer, even in cases where there is a real concern that pension liberation is afoot.  The best trustees can usually do is take their time (within the statutory time limit of three months, or six months if the trustees cannot, for reasons beyond their control, calculate the CETV within the initial three months), discuss matters thoroughly with members to make them aware of the risks and potential unauthorised payment charges they could incur.

Further Reading:  The Pensions Regulator has produced an action pack which helps industry professionals and trustees to spot problem cases and provides some useful case studies.  This is accessible on the Pensions Regulator's website.

Footnotes

1.The standard unauthorised payment charge is equal to 40% of the unauthorised payment.  An additional surcharge of 15% is levied if the unauthorised payment exceeds specific limits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.