I was approached by an MP who wanted some advice on how to deal with a problem raised by one of her constituents. Said constituent had been advised by someone he thought was a UK regulated financial adviser, because he claimed to be, but who turned out to be a fraudster. The constituent handed over his savings to this rogue (and sadly he wasn’t the only one to do so) and you guessed it; the money went into dud investments and fees and all was lost.

I can hear you say “why didn’t he check the FCA register to be sure the adviser was properly regulated for that specific activity?” Ordinary people don’t think that way and besides, it is a hell of a job working out whether an individual is regulated even when you know to check the register – it is full of gobbledegook and technical jargon that even when you find a named adviser, you are left asking yourself whether the words mean he can advise on that particular product?

To cut a long story short, the constituent lost his savings and tried everything he could think of to get his money back from the adviser, who is still happily living in the UK. When all avenues led to nothing except confirmation that he’d been defrauded, he approached his MP for help. Fortunately, the MP didn’t just send him a standard response, but took time to investigate and seek a solution. That’s when she hoped I might be able to help. Because the adviser was not FCA regulated, there is no claim on the FSCS. Because the money did not go to a registered UK pension scheme that lost assets through fraud, there is no claim on the FCF. The fraudster has no UK assets in his own name.

However, it turned out that the fraudster has his own UK pension and he also happens to be over age 55 and not yet retired. Perhaps the constituent could stake a claim on that? We all know that pensions can be shared on divorce, but we also know how difficult it is to assign pension benefits and for creditors to get access, even in bankruptcy. Pensions are yours for the most part. Of course, where a debtor has a pension and is over age 55, he can choose to cash in 25% of his pension and use that to settle the debt. It is not so easy where the debtor does not agree.

There have been legal cases where a court has ordered a debtor to drawdown 25% of his pension and ordered the trustee or provider to pay it to the creditor. It is not without cost, because it is a solution requiring court time.

So could the constituent try to get more than 25%? A Confiscation Order is possible and it sounds like a great way to get justice against a fraudster. Fortunately, the law now allows an individual to take more than 25% of his pension as cash, but there is a tax implication – tax has to be paid on the excess amount at the member’s marginal rate. An Order could be made against the whole pension and force drawdown of the lot in favour of the debtor, but the tax issue is a barrier.

The constituent was all for going down this route, but here’s the rub. A court order could be made, but our friends at HMRC would treat this action as an unauthorised payment and therefore would take 55% of the sum before it got anywhere near the victim. It would be a completely hollow victory that would help no one except HMRC. The last resort is to try to force the fraudster to draw down a smaller monthly pension amount, give it to the victim and hope the victim outlives the fraudster. We’ll see how that goes.

The end result is likely that the fraudster gets to keep his pension and live happily ever after, because after court costs and tax there would be nothing left for the victim.

We really need to review how we deal with the huge problem of pension and investment fraud. We are so poorly resourced and handicapped by archaic and even competing regulations that fraudsters hold all the cards.

Margaret Snowdon, Chair of PSIG