Out-Law News | 22 Jun 2018 | 4:46 pm | 3 min. read
The new Pensions Scams Industry Group (PSIG) code of practice takes account of the 2016 Hughes v Royal London case, in which the High Court ruled that a scheme member had the right to a statutory transfer even in the absence of an employment link with the receiving scheme employer. The case remains the current legal position, although the government intends to legislate to require a genuine employment link with the receiving scheme following the entry into force of the planned master trust authorisation regime.
The updated code contains additional guidance and sample wording to help providers and trustees alert scheme members to the risks of transferring pension funds to international self-invested personal pensions (SIPPs) or qualifying recognised overseas pensions (QROPs). It also contains additional guidance around dealing with vulnerable customers, and reporting suspect receiving schemes to Action Fraud.
Pensions expert and PSIG member Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said that the updated code "reinforces for the benefit of the pensions industry the warning signs and the steps that can be taken to reduce the risk of an individual losing a valuable pension".
"The three years since the code was introduced have seen a shifting legal landscape in the pension scams arena," said Fairhead, who was a member of the PSIG drafting committee which updated the code. "It has been challenging for providers and trustees to find solid legal justification for blocking transfers into suspicious pension schemes - whilst there is legislative change on the horizon, there is no silver bullet when it comes to eradicating pension scams."
"Whilst the code does not have legal effect, this updated version will serve as a powerful barometer for testing the quality of due diligence undertaken, and might well feed into the thinking of the Pensions Ombudsman and the courts when transfers go wrong and pension funds are lost. The focus on bespoke member communication is particularly welcome - one of the best chances you have of deterring a scam is to speak early on directly to the individual intending the suspicious transfer," he said.
Current legislation, as confirmed by the court in the Hughes case, gives pension schemes limited scope to refuse a statutory transfer request to a scheme which looks like a scam. The code is designed to help scheme trustees, administrators and providers to carry out suitable due diligence on receiving schemes when they receive a transfer request from a scheme member; to recognise the current strategies adopted by the perpetrators of pension scams to inform that due diligence; and to ensure members are aware of the risks to their savings from scams.
The code recommends that scheme members be sent pension scam awareness material as part of transfer packs, retirement packs and statements, and that links to this information be provided on scheme websites. It also recommends that scheme members seeking to make a transfer be contacted directly by telephone as part of the due diligence process, to help identify the reasons behind the transfer request and the source and circumstances of the request.
Schemes are advised to document communications with customers in relation to transfers, particularly in cases involving 'insistent' customers who decide to press ahead with transfers despite concerns about scams. The code encourages schemes to ask insistent customers to contact The Pensions Advisory Service (TPAS) for impartial guidance on the risks of scams, and to ensure that the discharge form signed by the member is sufficiently robust to reduce the risk of subsequent claims. It warns that trustees and providers may still risk claims from the member or the member's beneficiaries, regardless of the content of the discharge form.
The updated code incorporates various case studies which reflect actual decisions made by trustees, administrators and providers when faced with suspicious transfer requests. It also includes expanded template letters and checklists, including sample discharge forms for members who decide to press ahead with a transfer.
"The growth in international SIPPs and QROPS means that the scamming landscape has changed significantly in recent years," said PSIG chair Margaret Snowdon. "This, coupled with more members wanting to exercise pension freedoms and ever more sophisticated scamming tactics, means we need to be able to respond effectively."
"Whilst we await regulation to help stop cold calls and make it tougher to transfer, the industry needs tools to help pinpoint dubious arrangements. Scammers spend time grooming their victims, so we encouraging schemes to speak with members to fully understand their situation and refer insistent customers to TPAS, who can explain the risks of scamming from an impartial standpoint. The updated code is bold and informative, containing more case studies and stronger template letters and discharges to help schemes safeguard their members," she said.