With the law not adequately protecting savers from scams, the pensions industry must be more direct with members about the risks of transfers, says Margaret Snowdon.
Around £60bn was requested in transfer values in 2018, based on the alarming intelligence that 210,000 people took transfers amounting to £3bn. In the old days, only a few requested transfers went ahead, but now, almost half of transfers requested are completed. And as research by the Pension Scams Industry Group (PSIG) has shown that somewhere between 0.5% and 12% of transfers show signs of a scam, we can infer that probably 18,000 people made a serious mistake last year.
We can also infer that due diligence has helped to prevent many millions of pounds going to scams. However, too few schemes carry out proper due diligence despite the fact that the process set out in the PSIG scams code offers a great deal of protection. The code asks schemes to talk to members to explain the risks of scams to them directly.
When you talk to a member, you find out a lot more about the transfer process they have faced. You get to hear first hand that they were approached through social media or that they really don't know what they will be investing in or who their adviser is. The paperwork tells you one story, which is very credible, but the member can tell you another. By talking to the member, you can also establish a friendly link, which the scammers use to good effect themselves.
We need to beat scammers at their own game.
Administrators tell me that talking to members is expensive, and I agree, but I am very worried about the future when scammed members will seek compensation. They could win, despite the discharges they signed. Talking to members, and recording conversations, shows how well you explained the risks and what was understood. The cost of a conversation is far lower than the cost of reinstatement and a legal defence. Believe me, the risk is very real. It is already happening and could herald the next pension mis-selling scandal.
Trustees often tell me that they have no option but to pay a transfer where the member has a statutory right. This is where pensions legislation clashes with the duty of care. I agree it is not an easy judgement for trustees to make, especially with transfers to personal pensions - 95% of all transfers go to personal pensions. Most of these will be perfectly fine, provided the member understands what they are getting into, but many contain high charging or unregulated investments and can be subject to transferring onwards, or churning.
The law does not help protect members from the dangers of scams - and scammers know it. So we have to do all we can to ensure the member is aware of the risks. The Pensions Regulator and the Financial Conduct Authority issue materials to alert individuals and to encourage trustees to take steps to look out for scams, so awareness should be high. Yet so many people still think they won't be scammed because they are too savvy. The law will change eventually to limit the very strong statutory right but, as currently anticipated, will not limit transfers to personal pensions.
The PSIG is currently looking at introducing training for administrators and trustees to bolster the code. We will need to find some funding first of course, as we operate purely on the goodwill of our group. We are also exploring an online intelligence sharing portal for schemes and providers to ensure we can benefit from our combined knowledge of scams and use the tool to inform law enforcement. 2020 will be an exciting year.
In the meantime, we all need to continue to be on our guard and spot the scammers whenever we can. No one will do it for us.
Margaret Snowdon is chairwoman of the Pension Scams Industry Group and president of the Pensions Administration Standards Association
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