I was sitting in a harbour-side café in Fiskardo pondering what I could blog about this month. I was reading through the DWP response to the 18 months review of the 2021 transfer regulations (yes, I’m that sad) when a yachtie walked by with a T-shirt bearing the slogan above.
18 months ago, like many in the industry, I was pleased to finally have regulations that gave trustees the power to refuse to pay transfers where they thought there was a risk of a scam. Prior to the regulations, PSIG had codified what the best brains in the industry saw as good practice to spot potential scams. Beyond spotting the signs, there was little trustees could legally do to prevent possible harm, but many schemes took the opportunity to explain the risks to members and in many cases very grateful members decided against transferring. Of course, others, including some advisers and providers, berated trustees for stopping them doing what they wanted to do. They still do.
The 2021 regulations changed the balance of power, but as with many changes, the swing was a little too enthusiastic, enshrining in law very broadly defined scams signs. This shortcoming was spotted right away and could have been corrected early, but instead a wait and see approach was taken, while we all did our best with the tools we had.
As an industry body setting out good practice, PSIG was frustrated by the regulations which gave us what we wanted, but tied our hands too. We could not advise trustees to break the law. Schemes cannot do this, even where the law wasn’t really intended the way it ended up. It took us a while to find a middle ground, based on risk tolerance and the use of discretion. Not perfect, but most schemes got on with it.
The research conducted by DWP over the last 18 months has concluded that the vast majority of transfers are unlikely to be scams, in fact putting the proportion at 1%. This is largely based on DC transfers through Origo, where the majority of transactions are between known entities, in theory biased towards lower scams. PSIG’s position hasn’t changed since 2018, when we stated that around 5% of transfers are likely to be scams: of course the trick has always been to spot that 5% and let the 95% pass. It may not be a high proportion of the overall transfer market, but with average losses between £15,000 and £91,000 (depending on source and timeframe), that’s a lot of money representing people’s future wellbeing.
For me, the biggest revelation of the research is that we still don’t have reliable information on scam volumes. But does it matter? It is also clear that suspected scams are not being reported to Action Fraud. I hate to keep repeating myself, but that is not the fault of a busy industry. I would rather administrators spent the time helping members do the right thing than provide data that will not be acted upon. We need to know that the information we provide will be used to take down scammers so that in the long run we can reduce the time we spend fighting scammers on our own. We are not looking for perfection, but a move in our direction would be good enough.
PSIG has always worked on the premise that prevention is better than chasing the money after it’s gone. This means we always deal with suspicions rather than facts. Flags are warning signs of possible danger and not a smoking gun. If administrators don’t look, they won’t see the signs. If they look too hard, they’ll see too many signs, but I know which side I’d prefer to err on.
There are three things we need to get us going in the right direction:
1. Redefine overseas investments in the regulations to mean the real scam risk. Overseas investments are common, what we don’t trust are transfers to poorly regulated overseas jurisdictions
2. Redefine what we mean by an incentive to transfer. I don’t understand why incentives are necessary for transfers at all, but it is fairly common practice and generally viewed as harmless. Perhaps I am scarred by past incentivised transfer practices that required a Code to improve outcomes
3. Either blacklist the bad guys (in the too hard basket) or whitelist the good ones. The latter is already in play with clean lists as recommended by PSIG and silently encouraged by the regulations. However, creating and maintaining a clean list is not for the faint hearted. In our next publication, PSIG intends to introduce good practice on clean lists to help the industry identify “trusted” destination schemes. We would ask that any revision to the 2021 regulations recognises the value of clean lists and extends the transfer Conditions to include schemes on a well-managed clean list.
I won’t pretend that making these three changes will make for perfect transfers, but they would get us going – just like the T-shirt says!
Margaret Snowdon, OBE and Chair of PSIG
