Pension scams have been around a long time but, since the new pensions flexibilities were introduced, they are becoming even more prevalent. Alice Honeywill and Elena O'Leary explain how to avoid scams.
- Trustees should be familiar with the Pension Liberation Industry Group's code of good practice.
- Trustees should ask administrators to confirm compliance with the code and explain any divergences. Protocols should also be agreed for escalating cases of concern.
- Robust assessment processes should be adopted when assessing transfer requests.
- Try to ensure members are aware of pension scams.
It is important that trustees protect themselves and, most importantly, scheme members from pension scams but this can prove difficult. Trustees have the difficult task of balancing members' rights to make choices, even bad ones, against their duties to act in the members' best interests. So what can trustees do?
Heed the Code of Good Practice
Combatting pension scams: a Code of Good Practice, published by the Pension Liberation Industry Group, should be the starting point. The Pensions Ombudsman will take it into account as evidence of current industry good practice. It may also be relevant in persuading HMRC that sufficient due diligence has been carried out if seeking to avoid a scheme sanction charge.
Trustees should ask administrators to confirm compliance with the code and explain any divergences. Protocols should also be agreed for escalating cases of concern for further consideration.
The Code recognises the two main aims when considering a transfer request: firstly, to only make valid transfers; and secondly, to help put members in a position to make informed choices when requesting transfers.
The Code distils the steps to take into the following three core principles:
1. Raising Member Awareness - the best protection
The Pensions Regulator's Scorpion Campaign has recently had a facelift and has a range of hard hitting leaflets, videos and useful links which can be sent to members. Front line staff and administrators who have day-to-day contact with members need to be aware of the risks and be familiar with the Pensions Regulator's materials so that they can assist members.
2. Assessment Process
A robust, but proportionate, assessment process should be adopted when assessing transfer requests. Initial questions should be asked to elicit risk factors and, if they reveal concerns, further due diligence should be undertaken. If this leads to delays, transparency with the member regarding the reasons will provide an opportunity to flag any concerns regarding the transfer and the potential consequences of a scam.
The level of due diligence must be proportionate and it is not necessary to go to the ends of the earth for each case. If a member is insistent, or if it is decided to proceed with the transfer despite concerns, suitably robust discharge forms should be used to provide as much protection as possible.
3. Scam Awareness
Keep up to date with current strategies scammers are using by looking for warning signs as outlined in regulatory guidance, Financial Conduct Authority alerts and Action Fraud.
High court decision
The recent decision in Hughes v Royal London Mutual Insurance Society has provided further clarity on the circumstances in which members have a statutory right to transfer.
The High Court held that there was no legal basis for requiring the member wishing to transfer to be an earner in relation to a scheme employer of the receiving scheme. It deemed earnings from any employment to be sufficient and therefore the member had a statutory right to transfer.
After the Hughes decision the Pensions Ombudsman took the unusual step of releasing a statement acknowledging that the decision will make it hard to find no statutory right to transfer. Nevertheless, the Ombudsman continues to encourage trustees to make what checks they can and to issue risk warnings to members but notes that, ultimately, trustees often have no right to refuse a transfer under the legislation as it currently stands.
What it if all goes wrong?
There are potentially negative consequences whichever decision trustees make. If the transfer is made and later regretted, there is the risk that an unauthorised payment has been made which could have adverse tax consequences for member and scheme - subject to applying for a waiver of the scheme sanction charge if sufficient due diligence had been carried out.
In addition, there may be a chance that there has been no statutory discharge for the trustees. The member may also bring a Pensions Ombudsman complaint which could lead to cost and reputational damage regardless of the ultimate decision, as well as the potential for compensation.
Conversely, if the transfer is blocked, or delayed beyond the statutory six month timescale, there is the risk that the Pensions Regulator may take action, such as imposing a fine, though it would be expected to take some account of the circumstances. Again, a Pensions Ombudsman complaint may be brought with associated cost and reputational risk.
Key points to remember
Adopt a sound and informed process in compliance with the industry Code, raise awareness among members, and obtain robust discharges where possible. However, ultimately a member may simply insist on a statutory transfer and, unless the law is changed, that will remain the difficulty in many cases.
Alice Honeywill is a partner and Elena O'Leary is a trainee solicitor in the pensions team at Burges Salmon
Tim Shepherd and Beth Brown look at the legal implications of working from home and how pension professionals can mitigate the risks.
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
The Pension Schemes Bill has completed its third reading, crossing its latest hurdle in the House of Commons.
An amendment to the Pensions Schemes Bill which would have seen people given a pre-booked Pension Wise appointment ahead of accessing their retirement savings has been defeated.
A proposal to ensure savers receive a Pension Wise appointment prior to accessing their retirement pot has received cross-party support in parliament, while Labour seeks net-zero pensions by 2050.