In a webinar held in September, Professional Pensions’ expert panel looked at the dangers of pension scams and discussed the dangers posed by taking bad or no advice.
Sean Browes, accredited professional trustee at Dalriada Trustees
Browes entered the industry in 1988 and worked for two major consultancies in both admin and consultancy roles, before joining Dalriada in 2003, where he leads its TPR appointments team
Mark Cliff, trustee director at 20-20 Trustee Services
Cliff has 25 years' experience in pensions across advisory, in-house and trustee roles. He was appointed to his first trustee chair role in 2013 and joined 20-20 Trustees in April 2019
Jonathan Watts-Lay, director at WEALTH at work
Watts-Lay is one of the founders of WEALTH at work and has spent many years working with both companies and trustees helping employees and scheme members make informed financial decisions
According to a WEALTH at work survey, conducted with the Pensions Management Institute, 94% of trustees fear members approaching retirement will be targeted by scammers. Yet while scams may be the most visible way members can lose money from their pensions, they are also at risk of receiving inappropriate investment advice or simply making the wrong decisions at retirement, both of which could lead to poor outcomes. What are trustees worried about and what's the perceived issue from the trustee perspective?
Jonathan Watts-Lay: If we just pause on that one figure for a moment; 94% of respondents saying that scamming is a concern for them is an absolutely phenomenal figure. One could argue that that's hardly surprising given some of the backdrop around scamming that's gone on. We know that PSIG (Pension Scams Industry Group) for example have said they believe at least £10bn has been lost through pensions scams since 2015. And yet they're the first to admit that a lot of it goes unreported so the true figure is much higher than what we read in the press.
Trustees seem to have an equally large concern about areas beyond scamming. For instance, 89% are concerned their members do not understand the tax implications when they take their pension - an area that can range from people taking their 25% tax-free lump sum when they don't need to, putting this into a taxable environment, to people taking it before they have retired, which affects the amount they can pay into their pension going forward.
Mark, as a trustee, do you have similar concerns? What's your perspective on this issue, this spectrum of risk to members?
Mark Cliff: I completely agree with what you have been saying in terms of the risks to members.
You're quite right, it isn't all about scams. You talked about education - and that is so, so important in the way that we take things forward. Yet it is such a challenge for schemes - especially when you consider how much is required by all the initiatives that are coming through at the moment. For example, the scams pledge from the regulator requires you to talk about scams on annual benefit statements at just the time we are trying to simplify annual benefit statements.
I don't think there's an easy fix to some of these issues. People have a real emotional connection to their employer and a real emotional connection to their pension - which itself can lead to challenges, especially where the sponsor is in distress. I've had cases as a trustee where the employer is in the news a lot for really negative reasons, they're in a challenged industry. And you've got members who have significant pension saving with that employer seeing these headlines and just thinking "I want my money out".
Sean, coming to you, do you agree with that analysis?
Sean Browes: Yes, absolutely I do. Regarding victims of pension scams, my role within Dalriada is principally working on those schemes where we've been appointed by The Pensions Regulator to schemes that are suspected of being a scam in some form or a liberation scheme. So, we get to see first-hand the impact and the devastation that pension scams have on scheme members. It's been quite an education and a very steep learning curve for us in dealing with these types of schemes.
From the point of view of scams, I've said from very early on that the objective has to be to cut off the money at source. If you can stop the scammers getting their hands on members' funds initially, you'll go a long way to stopping scheme members becoming victims. To that end, there has to be a focus now on trustees and administrators to put in place proper robust processes.
PSIG have developed some pretty comprehensive processes that administrators should adopt in dealing with potential transfers, and clearly the impending change in regulations now to effectively give trustees the power to stop transfers if they have concerns that the potential transfer may be to a scam is to my mind a significant development.
To what extent do you think members and employers understand what they're doing?
Jonathan Watts-Lay: Part of the issue here is around the journey to taking benefits. One of the issues we've identified, as have others, is that if all engagement is left to the very last minute, it's very likely that people will make poor decisions. It could just be people planning to retire at age 60 or whatever and thinking: "Well, I don't really need to think about it or worry about it until I get to about 59½, and then they make this mad dash towards the finish line."
Looking at what schemes are actually doing with regards to education, guidance and advice, what approaches are you seeing in the schemes you work with?
Sean Browes: To an extent it comes down to the perennial question of scheme size and fundamentally who pays. But yes, to come back to the work that Jonathan has done and the other surveys, there is definitely now a significant improvement in understanding and awareness of the issue of member engagement and member education by trustees and employers.
So, we've got to revisit completely how you communicate with members. The industry has to get to grips with technology. The majority of financial matters individuals deal with are now almost predominantly done through apps on their phones - banking, insurance - and pensions should be no different.
Mark, what sort of approaches are you taking in terms of education, guidance and advice?
Mark Cliff: It varies massively. Just a couple of things I've found: I used to be in-house at an airport and I found that if you go around and speak to people you could start a conversation. People would say they're clueless, but if you spend five minutes talking to them in a way they understand then it's incredible how much progress you can make and how powerful it is. You can get the key messages across. We had a mantra of for every £1 you pay, you get £4 because of what the employer was paying and the tax relief you got. It is just about trying to make things really simple.
But of course, that relies on me, as the pensions manager, doing that. Doing it in this way means you can't get to everyone and you can't get scale - one thing it does show, however, is the impact you can have on people when you get this right. But doing this on a mass scale is really going to be a challenge.
I haven't had a single client who has gone as far as saying "let's get an IFA involved". DC really needs an awful lot of support in many areas to make that really function well from an education point of view. And DB is a little bit different in that people need real support at retirement around the decisions that they make.
We have a few questions about advice here. They seem to centre around cost. The fi rst thing is members who have to pay for the advice are concerned about its cost; and others say employers are similarly concerned. Is cost a hurdle if people get to that stage in the process?
Jonathan Watts-Lay: This is a really critical point because there's so much research out there over a number of years around cost of advice. And it all fundamentally comes to the conclusion that people will not pay.
All the research that gets produced is fundamentally from the basis of going out to people randomly coming up to retirement and saying would you pay for advice, and do you think the cost is too high? They're eff ectively loaded questions. They take no account of the process that should be gone through.
Mark, you mentioned people making emotional choices as opposed to more educated or factbased choices. How far should schemes go to help people and ensure they make an educated choice, rather than an emotional one? And allied with that, what about vulnerable members?
Mark Cliff : It should be incumbent on trustees to really understand the communication strategy they have and why.
Just at the moment I'm going through an administrator transition, we're just putting in a new administrator on a scheme, thinking about communication strategy. I'm spending more time on that than in any other area in terms of that transition because I believe we've got to get that right from day one to really make sure we digitalise as far as possible, we get the right communications out. We want to digitise so that we can provide better and wider communications to people.
Obviously if you have a DB pot of more than £30,000 you need to take regulated advice, how can trustee boards and employers know that people are getting good advice? How do you go about selecting providers? How do you know that the letter you have from a provider is a correct one and it is good advice?
Jonathan Watts-Lay: This is another really important point. It really goes to the crux of the matter as to whether trustees and employers are happy to say to their members, their employees ‘hey look, just go out there into the ether and find an adviser that can help you'. Or do they feel that actually a more appropriate approach is to find an adviser and do due diligence on them?
It's also really important to understand the advice that is being given. Mark mentioned DB transfers, which is the classic example. This is where you get that emotional element. We get involved with DB transfers and sometimes, in fact quite frequently, people will say "I want advice", and of course under the regulation you can't imply whether a transfer is a good or a bad idea. You have to put them through that advice process, you have to do all the analysis before you weigh in one way or the other.
Sean Browes: There are questionable advisers out there - leaving aside the idea that members quite often don't understand what or who an adviser is and what constitutes regulated advice. Typically with scams you will see members being introduced through unregulated middle men, those entities that are out there pushing the website free pension reviews, cold calling, blah blah blah.
We know as an industry that those individuals are not advisers in the accepted sense - they are just unregulated middle-men. But the man on the street, and this comes back to the education process, doesn't necessarily appreciate that.
But leaving that aside, even when they are using the services of a regulated adviser, there are questionable firms out there. We have seen multiple instances of, on the face of it, regulated IFAs providing questionable advice to facilitate a transfer to a scam scheme.
The idea then is that if you try and take that risk away, and have the schemes and the trustees being responsible for providing that advice, doing all of the due diligence that Jonathan talked about, having a panel of advisers that you can use, then that should give some greater comfort that the individuals giving that advice are genuine, proper tested advisers.
What do you see preventing trustees from doing more on this? I know trustees generally are doing more. Is it just a cost?
Mark Cliff : It often depends on the individual group of trustees and the advisers that they have. You have some advisers for whom this is really important, and they've got the skill sets to advise well in this space.
Again, somebody needs to push it up the agenda within schemes, and often with the best will in the world, trustees don't appreciate that there is an issue. They don't necessarily look at communication strategy, they don't really see what members are actually receiving. They might receive an administration report saying that everything is delivered within service level agreements, but they don't really understand the member experience or how informed they are.
So, I don't believe there's an understood burning platform that is making trustees really bring it to the fore, but the reality is that this burning platform is actually there, it's just not necessarily seen. We all need to do more to bring that more into front and centre. It almost feels a bit optional at the moment, I would say. It shouldn't be.