We eagerly await the Pension Schemes Bill 2020 as we know there will be some help to limit the number of pension scams, but it will not be enough. As long as people want to increase their retirement pots, there will be opportunities for the unscrupulous to promise them better outcomes and instead either steal their savings or encourage them into arrangements where the charges mean very little is left to the individual.
When PSIG started out with a Code to help schemes identify potential dodgy transfers, we were a fairly lone voice asking trustees and providers to adopt our good practice and do what they could to protect members from scammers and sometimes from themselves. It has been a tough gig. The law makes it hard to counsel people against unwise actions, partly because of a fear of being deemed to have given regulated financial advice and secondly because of the real risk and cost of complaints going to an ombudsman or regulator.
Over the years, several organisations have increased their efforts to warn individuals about the danger of pension scams, and most of those campaigns are excellent. However, people do not pay attention. They do not believe they would be scammed. The adviser helping them is always a nice guy, almost part of the family and certainly wouldn’t run off with their money. Warning people against scams is not the way to stop scammers. We need to ensure the money can’t be transferred.
A few weeks ago, I wrote to the Pensions Minister again urging him to consider stronger legislation against scams. We have been calling for legislative change since 2016. What do we want?
(a) DWP legislation to give trustees the power to refuse a transfer on grounds of warning flags raised by good due diligence practice
(b) Legislation to reinstate Pensioneer Trustees to SSASs
(c) Extend scheme registration to one person pension schemes and their oversight by the Pensions Regulator
(d) HMRC to change tax law to allow them to waive unauthorised payment tax charges on the victims of liberation up to April 2014
(e) Home Office to extend Victim Support services to pension scams victims
The statutory right to a transfer is strong and unless it can be shown that a scheme is not authorised by either HMRC, in the case of an occupational pension scheme, or by the FSMA for a SIPP, challenging a transfer is hazardous for trustees and providers. Research by PSIG last year showed that 95% of transfers from DB schemes go to a SIPP. Some legal advisers counsel their trustee clients to pay transfers to SIPPs without question, where a statutory right to transfer exists. While this is legal, it makes the task of protecting against scams very difficult indeed.
Trustees and providers who refuse to transfer when they see concerns are exposed to complaints and possible future punishment, which is a invidious position for those who wish to protect members from potential harm. Trustees in Guernsey, for example, are able to refuse a transfer where they have concerns about a scam and their judgment is secure. We would like to see this situation in the UK and we would also like to see the return of the Pensioneer Trustee to Small Self Administered Schemes to ensure better protection in those arrangements.
PSIG has therefore called repeatedly for a change in legislation to enable trustees and providers to use their judgement to override a member’s statutory right to transfer, where reasonable due diligence throws up red flags. This request has so far been denied, although the Pension Schemes Bill is expected to restrict the statutory right to transfer to a smaller number of scenarios, including for an occupational scheme, an earnings link. I am concerned that this will not address the 95% of transfers to SIPPs and will therefore not reduce the number of people who find themselves in a high fee charging arrangements, or worse. It is also likely to raise the demand for discretionary transfers and create difficulties for schemes, who will doubtless be challenged if they do not follow the discretionary route.
We must allow trustees and providers to refuse to transfer where due diligence shows red flags. This is the only way to ensure safety for pension scheme savings: encourage schemes to carry out good due diligence and permit them to use that intelligence to make effective judgement on the risks of the transfer to the member. We welcome any changes that make it harder to transfer to dodgy deals, but if it was easy, scams would already be a thing of the past. Instead, the number of scams, especially investment type scams, is increasing to epidemic proportions. I fear this situation will only get worse if we continue to tinker at the edges with piecemeal legislative change.
Trustees are engaged to exercise judgement, so we should allow them to, even if it makes them a bit unpopular with some members and with some employers. This is preferable to the pain of individuals losing their savings at the time they need them most. It is also preferable to the pain schemes will feel when they are challenged for making bad transfer, which with hindsight proved to be very bad for the member. Reinstatement of lost benefits could cost schemes dear. Pension scams will therefore prove expensive for this nation in the future; we owe it to ourselves to take effective action now.
Margaret Snowdon OBE, Chair of PSIG
