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What's next for the war on scammers?

01 September 2017

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Following the news that the government has stepped up its measures to prevent pension scams by including emails and text messages in its impending cold-calling ban, Robert Palmer, welcomes this decision and says it's about time firm action was taken.

Pension scams are generally unregulated investments offering 'guaranteed returns' that are too good to be true?there's a clue there?the returns quoted are such that individuals will easily make up the amount disinvested today and so will be "no worse off".

The investment opportunities include exotic sounding investments like hotels, vineyards or other overseas ventures. The truth is that these schemes tend to attract very high management fees and often end in bankruptcy, with assets sold on to new owners. This leaves the investor with little or nothing of their original stake.

As well as losing their pension savings, individuals could also get a huge tax bill. The liberation of pension assets before age 55 will very often be classified as an unauthorised payment. Such payments typically attract a 55% tax charge applied to the amount of the unauthorised payment.

If the individual is lucky, this will be levied only on the amount of money paid up front to the individual, but it could be levied on the full transfer of assets.

To add salt to the wound the tax bill will arrive sometime later?giving the blissfully unaware person plenty of time to have spent the money.

In March 2017 alone a record £8 million of pension savings were lost, and now the government finally looks set to do something about it.

There is an estimated 250 million cold calls made each year offering members of the public a free pensions review or incentives to release pension funds early, but the fraudsters don't stop there. They send emails and texts which are just as convincing and dupe innocent people out of their retirement funds.

This blanket ban on all cold calls, texts and emails will send out a clear message to the public that no legitimate organisation will contact them about their pensions, so if they are contacted, they'll know it's a scam. The heavy fines - up to £500,000 - for companies that flout the ban should also reduce the amount of fraud too.

The scammers are very good at what they do and have a very detailed understanding of this narrow area of legislation. The ban on cold calling is the latest jump forward in the ongoing arms race between the pension industry, HMRC and regulators on one side and the scammers on the other side.

In order to solve the underlying problem, the government need to enact into law a system whereby fraudulent advice is identified ahead of the assets being transferred. This is incredibly difficult to achieve and will cause delays to the legitimate movement of funds.

In the meantime, a law which enables Trustees to block payment of a transfer value where there is a suspicion of pension liberation, would enable Trustees to act more decisively.

Trustees have a duty of care towards members and accept this responsibility on a day to day basis. It is difficult for legislation to remove the right of individuals "do something stupid" if they want to. However, certainly for transfers from trust based schemes, trusteeship offers a useful system for members to engage with.

The need for greater legal protection for Trustees and providers taking reasonable steps to protect a member from pension liberation would significantly help in the fight against the scammers.

Robert Palmer, Partner and Actuary at Quantum Advisory