Tackling pension scams
27 November 2017
This article was featured in the December 2017/January 2018 issue of the magazine.
Samantha Mann MAAT, MCIPPDip, CIPP senior policy and research officer, outlines the government’s proposals
The scale of the problem
Almost £5 million has been obtained by pension scammers during the first five months of 2017; and if you add to that the further estimate that a total of £43 million has been unlawfully obtained by scammers since April 2014 (resulting in an average loss of nearly £15,000 per victim), it is clear the government needs to act.
Pension scammers get savers to part with their money with false promises of low-risk, high-return investment opportunities. If it seems too good to be true, it probably is.
In December 2016, the government launched a consultation (http://bit.ly/2gHGh8g) seeking views on a package of measures aimed at tackling three different areas of pensions scams:
banning cold-calling in relation to pensions
limiting the statutory right to transfer
making it harder to open fraudulent schemes.
The government received 111 responses to the consultation. A number suggested that the government could and should go further by taking a significantly tougher approach; however, the majority of respondents were supportive of the proposals.
The government’s consultation response (http://bit.ly/2gbgxQQ) sets out the feedback the government received and its intended next steps. It provides details as to how the government intends to respond to this crime in the coming years in a bid to protect pension savings from theft through scams.
Defining a pension scam
There was widespread agreement as to the usefulness of having a definition of a ‘pension scam’ as recommended by Project Bloom which is a cross-government taskforce led by The Pensions Regulator (TPR). It comprises representatives from government, regulators and law enforcement agencies and has been set up to monitor trends, share intelligence on emerging threats and help co-ordinate action to tackle pension scams.
Having a clear definition will help trustees, providers and members to spot warning signs before making a costly mistake. It will also support regulators and the legal system to classify activity as a scam after the fact. With a tweak that replaces ‘under 55’ with ‘normal minimum pension age’, the definition of a pension scam is: “The marketing of products and arrangements and successful or unsuccessful attempts by a party (the ‘scammer’) to:
release funds from an HMRC [HM Revenue & Customs] registered pension scheme, often resulting in a tax charge that is not anticipated by the member
persuade individuals over the normal minimum pension age to flexibly access their pension savings in order to invest in inappropriate investments
persuade individuals to transfer their pension savings in order to invest in inappropriate investments where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.”
Ban on cold-calling
Cold-calling is the most common method used to initiate pension fraud, and so it is proposed that by delivering such a ban a clear message can be sent to consumers that no legitimate frim would ever look to cold-call them about their pensions and so will encourage scheme members to end the call immediately.
The types of calls that would be covered by the ban were listed in the consultation and included:
offers of a ‘free pension review’, or other free financial advice or guidance
assessments of the performance of the individual’s current pension funds
inducements to hold certain investments within a pensions tax wrapper including overseas investments
promotions of retirement income products such as drawdown and annuity products
inducements to release pension funds early
inducements to release funds from a pension and transfer them into a bank account
inducements to transfer a pension fund
introductions to a firm dealing in pensions investments
offers to assess charges on the pension.
The final details of the ban are being worked on and legislation to deliver the ban will be brought forward ‘parliamentary time allows’.
Two specific exclusions from the ban will be introduced: calls where consumers have expressly requested information from the firm; and those where an existing client relationship exists.
The government agree that the legislation that they bring forward needs to be future-proofed to prevent the ‘evolution of scams’ that will avoid the ban. In response to concerns raised throughout consultation, government also intends to extend the ban on cold-calling to include emails or text messages about pensions. The ban will not extend to cover traditional and/or social media.
The Information Commissioner’s Office (ICO) currently regulates firms that make unsolicited direct marketing calls and has a number of enforcement powers to tackle breaches to the rules which include issuing penalties of up to £500,000. Some respondents said these powers should be extended to enable the ICO to impose criminal sanctions; however, as law enforcement agencies including the Financial Conduct Authority (FCA) already have such powers to tackle the worst offences involving fraudulent activity, this wasn’t a step that the government felt was necessary.
Limiting the statutory right to transfer
The government will continue to work with industry, consumer groups and other stakeholders during the year to finalise the detail of this proposal which looks to limit the statutory right to:
transfers in to personal pension schemes operated by firms authorised by the FCA
transfers in to authorised master trust schemes
transfers where a genuine employment link to the receiving occupational pension scheme could be evidenced.
Discussion continues as to how the detail of this will need to look in order to minimise the risk of blocking transfers to legitimate schemes.
Making it harder to open fraudulent schemes
The tightening of rules to stop scammers opening fraudulent pension schemes will see government also introduce legislation which aims to ensure that only active companies can register a pension scheme, and which will introduce additional changes to the scheme registration process. Further engagement will be needed with industry, consumer groups and other stakeholders to consider feedback on options to professionalise small self-administered schemes.
Consumer awareness is critical
As the details are still being worked through we see that beyond the government response TPR continues to warn trustees, advisers and scheme members, about the dangers and the danger-signs of scams with new videos, guidance and tools.
If you haven’t already taken a look, now might be a good time to peruse TPR’s five step guide Thinking of doing something with your pension pot? (http://bit.ly/1UNaUHz).
Once read, don’t keep those useful tips to yourself – spread the word to colleagues, clients, family, friends and neighbours.
To view all articles from this issue of the magazine please click here
*content correct at time of publishing