Complaints about pension liberation have soared in the past year and are threatening to swamp the Pension Ombudsman.
The ombudsman has released figures showing a 240% rise in pension liberation cases.
Last year, the service dealt with 52 cases, compared with 177 out of 1,281 cases this year.
The flood of complaints has led to a backlog in rulings, explained the ombudsman.
The blame was a lack of qualified staff with the experience to investigate the complaints and delays in compiling reports on the cases that often involve complicated unravelling.
“Most of the complaints stem from retirement savers who want to switch their cash to a pension liberation scheme but are told they cannot by their current provider,” said a spokesman for the ombudsman.
Backlog of complaints
“Firms are refusing to make the transfers because they believe switching pensions is not in the customer’s best financial interests.”
The spokesman also explained that a smaller number of complaints arose from customers complaining that their provider should not have transferred their funds to a pension liberation scheme when they suffered a loss.
Pension liberation or unlocking is when a financial firm offers retirement savers the chance to draw money from their pensions when they are aged under 55 years old.
According to pension rules, this is not illegal but does mean they have to repay any tax relief on contributions they take out of the fund.
Many pension liberation firms do not explain this to retirement savers, which leads to a conflict when HM Revenue & Customs (HMRC) calls for the tax relief to be repaid.
Stamping out pension scams
Other firms are scams set up by fraudsters who shift the cash into risky investments that are often offshore.
Pension liberation accounted for 14% of new investigations opened by the ombudsman, but only 6% of closed cases due to the surge in complaints.
Meanwhile, lawyers Linklaters have suggested pension liberation could be stamped out if HMRC published a list of authorised pension schemes which providers could transfer retirement savings to for customers.
“HMRC already does this for other financial sectors, like Qualifying Recognised Overseas Pension Scheme (QROPS) and pre approves companies in the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS),” said a spokesman.
“If a scheme is not on the list, then no transfer would be allowed. It’s as simple as that.”
