The UK’s Pension Scams Industry Group (PSIG) recently put forward a recommendation which would add an amendment to the Pension Schemes Bill.
The group is looking to give pension trustees the power to stop a defined benefit (DB) pension transfer if they suspect the scheme member may be falling victim to a scam.
In its submission to the Work and Pensions Select Committee, the PSIG argued that the current focus has mainly been on recovery rather than preventing money going into scams in the first place.
This shift, however, is only possible through “legislative change”, which would achieve protection “at no cost to government”, it added.
But, if this amendment was to go ahead, would it really provide greater protection for scheme members?
‘One step ahead’
David White, managing director at QB partners, told International Adviser that while PSIG’s work is commendable, it may not be enough to fully safeguard consumers.
“Changes have been made to regulations in an attempt to do this, such as the ban on cold calling, but unfortunately, the scammers always seem to be able to stay one step ahead and to think up new ways of targeting their victims.
“Transfers out of a DB pension scheme with a value of over £30,000 ($38,612, €32,931) require advice from an appropriately regulated adviser with the correct permissions.
“The Financial Conduct Authority (FCA) have been continually reviewing and amending the regulations in an effort to ensure that the pension scheme members are able to obtain appropriate advice, which should offer members of defined benefit schemes greater protection against scammers,” he added
Extra burdens?
But White believes that what the PSIG is recommending should already be part of the advice process that a regulated planner provides.
“Ceding schemes are already issuing a leaflet warning potential transferring members that they may be being scammed.
“Giving the ceding pension trustees the power to stop DB transfers if they spot signs of scams will be another control and it should help, providing the pension trustees are given appropriate guidance as to what is likely to result in a scam, and that pension scheme administrators are given appropriate training.
“As always, there will be a balance between ensuring that proper controls are in place and ensuring that the process does not become unnecessarily prohibitive for scheme members and their advisers, who wish transfer in the correct circumstances.”
Still at risk
Even if the changes in legislation were to go ahead, White argues that retirees will still not be truly safe from scammers and fraudsters.
This is because, once the funds are transferred out, the money will likely be held in a Sipp or other types of defined contribution schemes and, “under pension freedoms, members of these schemes are able to access their funds, without taking financial advice”.
White added: “Once the member is in possession of the funds, they become a target for potential scammers. Even when the funds are still being held within the Sipp or other pensions, there is still the opportunity for members to be persuaded by scammers to make inappropriate investments, which may be illiquid and pay high levels of commission to the introducers.
“There is also potential for so called ‘fractional scamming’ where additional layers of charges are added.
“The receiving scheme’s pension trustees can help with this by ensuring that they have appropriate controls to minimise members being persuaded to make unsuitable investments.”
Trustees under a microscope
White said that, in recent years, financial regulators have increasingly looked at the responsibility pension trustees have in this area.
This is because, as he previously stated, trustees of both ceding and receiving schemes should have controls and processes in place to protect retirees.
Christine Hallett, managing director at Options UK, told IA that the issue of pension transfers has been going on for decades.
“We don’t seem to learn from past experiences; many provider firms went through a massive transfer review initiated by the Financial Services Authority at the time in 1996 and this went on for some years and yet, here we are in 2020 moving forward into 2021 having the same discussions, so why is this?
“Not enough changes are made at the time of these, because it is always the fault of the industry providers or trustees or administrators as opposed to recognising it is a weakness in our overall regulatory system.
“Yes, I vote for change, but I also vote for the regulators to take responsibility and work with the industry to improve and make changes through the whole chain, because just by giving one part of the chain the power, this will not go far enough to eradicate the processors the scammers use, and what products they use or whether they are international or UK it matters not if the systems and control from end to end are tight,” she added.
Single mother
This is not the first time that pension trustees have made headlines in recent weeks.
IA recently reported on the case of Manita Khuller, a single mother who legally challenged the trustees of her Qrops after she was mis-advised to transfer out of two of her DB pensions.
Her money was then put into a Royal Skandia wrapper and invested in three funds, one of which was LM Investment Management – a property fund that turned out to be Ponzi scheme.
The other two funds were also understood to be unregulated.
While Khuller lost in the first instance, she was successful in her appeal against pension trustees FNB International, which she argued was responsible for her losing around £330,000.
It appears that the role of trustees will continue to be under the microscope as the regulator tries to plug all the gaps in the DB pension transfer system that allow fraudsters and scammers to get in.
