This article was originally written for and published in the Journal of the Law Society of Scotland, May 2021
Savers have been warned to remain vigilant and protect their pensions, as figures from the national reporting centre for fraud and cyber crime (“Action Fraud”) reveal that £1.8 million has already been lost to pension fraud this year. Whilst Action Fraud reports a steady fall in pension scam reports (from 1,788 in 2014 to 358 in 2020), worryingly in the first three months of 2021, 107 reports of pension fraud have been made (an increase of almost 45% on the same period in 2020).
Action Fraud has reminded savers of some simple steps they can take to protect themselves. Those include:
- Reject unexpected pension opportunities, such as free pension reviews or investment opportunities involving their pension, whether made via email, social media, text, or over the phone.
- Research who they are dealing with before changing their pension arrangements – checking the FCA Register, or calling the FCA on 0800 111 6768 to see if the firm is authorised by the FCA.
- Not to be rushed or pressured into making any decision about their pension – consider getting impartial information and advice from a financial adviser authorised by the FCA to help them make the best decision for their own personal circumstances.
- Be suspicious if they are contacted out of the blue about an investment opportunity – seek advice from trusted friends, family members or an independent professional advice service before making a significant financial decision, especially when it involves their pension pot. Even genuine investment schemes can be high risk.
- Be ScamSmart, and visit the ScamSmart website to learn how to protect themselves from pension scams.
Revised Code of Best Practice
Complementing this, the Pension Scams Industry Group (“PSIG”) has issued a new version 2.2 of Combating Pension Scams: A Code of Best Practice, effective from 1 April 2021, which includes:
- a Practitioner Guide which sets out due diligence steps that should be taken in assessing scam risks;
- a Technical Guide which details the rationale, legislative and regulatory requirements in relation to pension transfers; and
- a resource pack containing materials that can assist with carrying out the due diligence process.
The code has been updated to take account of a host of regulatory and legislative developments, case law, Pensions Ombudsman determinations and intelligence collected by regulatory bodies, including TPR’s Pledge to Combat Pension Scams initiative, the FCA’s updates to its ScamSmart site, made in response to the pandemic, and the regulations expected to be made under the Pension Schemes Act 2021 in relation to transfers.
Further legislative support
With the 2021 Act having received Royal Assent, the Pensions Minister has also now given a broad indication of the timetable for next steps (largely seasonal), including from early autumn 2021 consultation on draft regulations intended to combat scams. Those regulations will place new conditions on a member’s statutory right to transfer their pension rights to another scheme, and will aim to enable scheme trustees to refuse a transfer in the event of a major “red flag” being raised.
These new conditions are expected to relate to both the destination of the transfers, enabling prevention of transfers to schemes that do not have the right authorisation, and cases where the member has not supplied the evidence of, say, employment or residency. In the latter case it is anticipated members may require to provide to the trustees or managers of the occupational pension scheme they want to transfer their pension savings out of, evidence or information about their employment link to the receiving pension scheme or their residency overseas. For example, to demonstrate a genuine link with the employer of the receiving scheme, it is expected the scheme member may be required to provide payslips and bank statements over a three month period. The employer in such cases may also be required to provide a statement to the effect that they employ the member and participate in the receiving scheme.
Importantly, those new conditions can also include other red flags, such as who else is involved in a transfer. If those red flags are apparent, the regulations are expected to enable the trustees to refuse to transfer, and if the red flag is significant, direct the member to guidance or information that they must take prior to being allowed to transfer. Trustees will need to undertake due diligence to establish whether or not those conditions are met.
The new conditions will seek to put trustees in the driving seat in relation to permitting transfers to proceed.
Staying one step ahead
These initiatives should together assist in combatting scams. However, the Pensions Minister has highlighted that the current legislative process has its deficiencies and has called for broader powers, in order to avoid the lengthy legislative process required to combat scams once they are identified. One would hope that there may be some accommodation of that with adequate safeguards in place.
If you require any further information, please contact the author, Colin Greig or your usual Pensions team contact.