Out-Law Analysis | 30 Apr 2020 | 2:11 pm | 3 min. read
The Pensions Regulator (TPR), Financial Conduct Authority (FCA) and Insolvency Service have all issued warnings in recent weeks around an increase in scam activity, including specifically in relation to pensions and pension transfers. Action Fraud has also reported increasing numbers of scams with a link to Covid-19, including investment scams.
It is difficult to tell how much actual scam activity is already out there, but the economic downturn triggered by the pandemic and related uncertainty mean that conditions are ripe for the proliferation of pension scams. So what should consumers be on the alert for - and is there anything the pensions industry can do in response?
As the regulators have warned pension and investment scams can be subtle, play on consumer fears of market volatility and emerge in the months after the initial shock of a triggering event. In particular, scammers are likely to try to persuade savers to move their pensions given the volatile state of the financial markets - when, of course, it will rarely be in their interests.
Trustees need to be ready to probe more deeply and, preferably, engage directly in discussions with the member if there are suspicions.
In other cases, unscrupulous parties might target members of particular company pension schemes where the sponsoring employer appears unstable - we only have to look at what happened with the British Steel pension scheme, which was the subject of a Work and Pensions Committee inquiry in 2018. Finally, and most alarmingly, there is a real risk of the rebirth of so-called 'pension liberation' scams – enticing those short of money, perhaps as a result of loss of employment, into accessing part of their pension, oblivious to the tax risks and the inevitability of losing whatever part is not liberated.
Requests for pension transfers from scheme members will continue in the coming weeks and months, in the absence of a ban on such activity for a long enough period to ride out the economic fallout from the crisis - something which seems unlikely, despite calls from former pensions minister Baroness Altmann for a six-month ban. With the Pension Schemes Bill, which contains provisions limiting the statutory right to transfer where there is no genuine employment link with the receiving scheme, now on hold, there may be a strong temptation for schemes to feel like their hands are tied when faced with a suspicious request.
But schemes already have resources available to them to protect their members – and themselves - against the risk of future claims when suspicions arise. Careful reference to regulatory materials and the industry Code of Good Practice remains the best starting point; particularly the checklists of enquiries to make, ranging from the obvious checks of HMRC registration and existence of a cold call to more subtle red flags, such as how new the scheme is and how recently the parties involved were incorporated.
Bear in mind, though, that scammers have evolved their tactics effectively in recent years, and will be one step ahead in recognising what checks will be made and what questions will be asked. Trustees need to be ready to probe more deeply and, preferably, engage directly in discussions with the member if there are suspicions. Direct member calls have been shown to make a difference in scratching underneath the surface to understand the true reasons behind why the member wants to transfer, and sometimes in dissuading them from proceeding; while the FCA's 'ScamSmart' service provides practical advice for consumers.
TPR has recently issued new guidance on member communications during the pandemic, including a template letter (2-page / 117KB PDF) which should be sent to those seeking to transfer out of a DB pension "for the foreseeable future". Trustees have also been asked to monitor transfer requests, and to report any suspicious trends that emerge to the FCA. Trustees should continue to monitor announcements of this nature from the regulator, as we can expect further guidance as new risks emerge.
It is critically important that checks and communications are fully documented. With added public warning around the risk of scams, we might eventually see the Pensions Ombudsman (TPO) take a harder line on any misdirected transfers that take place in the coming months where there proves to have been a hint of something suspicious not alerted to the transferring member. If the pandemic has grabbed the imagination of the scammers, the fall-out is bound to grab the imagination of claims management companies - and a complete paper trail will stand schemes in better stead in the event of a complaint or claim in the years to come.
Irrespective of concerns around scams, facilitating pension transfers will not be without its practical challenges at present, with providers and trustees adjusting to home working or struggling with resourcing. TPR has also suggested a three-month delay to processing transfer requests, although its guidance is not legally binding. Delays are inevitable, and that might well be no bad thing in the present circumstances.
These are not conventional times, and risks need to be carefully evaluated and advice taken in difficult cases. Aside from the financial detriment to scheme members of getting this wrong, reputation risk and a new wave of fresh complaints and claims to follow the new wave of pension scams is almost certain.
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