For a number of years I’ve dreamt of being able to stop pension scammers and have been saying “Gimme, Gimme, Gimme”  some tools to stop scammers making off with peoples’ hard earned retirement savings. 

PSIG wrote the Code of Good Practice, which is followed by many providers (although some haven’t heard of it), but schemes always face the problem that signs that the transfer is likely to harm the member does not give them the power to refuse it. Unless the transfer would be unauthorised at payment, trustees have to honour the member’s statutory right to transfer. They then have to wait for the fallout later on. Oh for the right to save members from scammers and themselves, but the ultimate prize was always illusive. Until now, that is. 

 

The Pension Schemes Bill was debated in the Commons on 16 November, specifically Clause 125 to restrict the statutory right to transfer where certain specific scam signs, which would be set out in subsequent regulations, were seen during due diligence by ceding schemes. That amendment, and another to introduce automatic guidance, were voted down, but they got a good airing and cross party support.  What I am pleased about was that the Minister committed to introducing regulations that would set out the red flags to remove the statutory right, relying on a phrase “including but not limited to” in the Bill. This works for me - we get a lot of what we wanted. 

 

Drafting of those regulations is underway with a short timescale to put them into effect. The longer the delay, the more people will lose their savings. Scammers will be applying pressure for the next few months to encourage members to buy now while they can, before those pesky scheme trustees can stop them doing what the scammers want them to do. 

 

Easier said than done. The red flags envisaged are already set out in the PSIG Code; they are how we currently judge whether a scheme is dodgy or not. However, regulations have to be precise and objective to work, so the wording of the red flags will need to be tightly defined.  Logical, but likely to mean a bit of watering down of the scope for refusal. Signs that look as plain as the nose on your face will need to meet a tough test of objectivity. 

 

One thing that causes me a bit of concern is the case where advice has been given by a regulated financial adviser, who may have recommended against a transfer, but the member still wants to go ahead. The regulatory bar on advice having been given will have been satisfied.  Trustees don’t have the right to see the advice, so in reality the member will have to bear responsibility for his choice. In other cases, at first sight, a regulated financial adviser may appear to have given advice, but further delving reveals that the advice actually came from an unregulated adviser, perhaps overseas.

For this to happen a regulated adviser may have to collude, but it does happen. But as before, the regulatory bar will have been met as far as the ceding scheme is aware.  You could argue that these are matters between the FCA and the adviser and you would be right. But how far do trustees go in protecting members? The forthcoming regulations, by being precise, will make that clear. It will probably leave significant gaps and many members still able to be scammed, but after years of battling, we are making good progress. 

 

Progress was also made recently in the matter of compensation for some victims of scams with the High Court judgement clarifying that schemes used for pension liberation (and other schemes) are probably eligible for compensation under the Financial Compensation Scheme run by the PPF, provided scheme losses are due to dishonesty.  There is no compensation for bad management. Compensation, where due, would be paid to the scheme and not to members, although compensation for losses will help ensure there are some assets to pay benefits to members. The FCF only applies to occupational pension schemes though, so doesn’t help with scams using personal pension schemes, sadly the majority today.  It is not an overnight solution either, as it will take years yet to argue the finer points, but we are making steps in the right direction. 

 

Now we need to address the anomalies in tax law to stop automatic levying of tax penalties on victims and schemes. If we don’t, there will be great injustice and it raises the spectre of compensation paid simply ending up in HMRC’s pockets. Robbing Peter to pay Paul really. A simple amendment to Finance Act 2004 has been proposed, but kicked into the long grass.  We’ve waited “So Long” – maybe the tide is turning.  I hope so, “I Do, I Do, I Do, I Do, I Do”. 

 Margaret Snowdon, Chair PSIG