The government has missed an opportunity to tackle the growing pension fraud issue by focusing its Pensions Bill solely on master trusts, providers have claimed.
The Queen’s Speech on 18 May revealed government plans to crack down on ‘lightly regulated’ master trusts, in an attempt to give workplace pensions savers more protection.
A new Pensions Bill will enforce strict new criteria for master trusts to have to demonstrate before schemes can enter the market and accept funds. It will also cap provider exit charges, the speech’s supporting documents showed.
But providers have argued the government missed a trick in its omission of stricter controls for small self-administered schemes (SSAS), types of schemes often set up for company owners.
These schemes, though legitimate pension schemes, often are abused by pension scammers, said AJ Bell head of technical resources Gareth James.
He said AJ Bell, a SSAS provider, has seen a 140% increase in the volume of transfer requests to SSASs that have “raised a red flag” in its due diligence process in the past ten years.
He said: “It would be bizarre for the government to legislate based on the fear master trusts could be used by scammers, without doing the same for SSASs when they already are being used by scammers.
“SSASs remain a valuable type of pension scheme but for a number of years, pension fraudsters have been setting them up to scam savers. Until policymakers and regulators get a grip on this market, vulnerable savers will continue to be robbed of their life savings by opportunistic scammers.”
SSASs used to be governed by a professional trustee, independent and recognised by HMRC as having the knowledge required to run SSASs. But that was changed in 2006.
James said: “The government should reintroduce the requirement for all SSASs to have an independent trustee looking out for the welfare of scheme members. This would be a kick in the teeth to pension fraudsters and introduce a valuable extra line of defence in the war against scammers.”
He also referred to a recent High Court ruling against Royal London in February, which confirmed it is not necessary for a person who wishes to transfer their pension to an occupational scheme to have earnings from the employer linked to the scheme.
The case involved Royal London blocking a £9,000 pension transfer request over concerns about the receiving scheme. The Pension Ombudsman found in favour of the firm following the client’s complaint but the High Court eventually sided with her.
Prior to the ruling, the Pensions Ombudsman had determined that it was necessary for an individual to have earnings in relation to the scheme’s employer in order to have a statutory right to transfer.
This is likely to further encourage pension fraudsters to use SSASs as the vehicle for their scams, said James.
Aegon UK head of pensions Kate Smith agreed: “I’m extremely disappointed that the government has failed to use the Queens Speech as an opportunity to tackle the ever-growing threat of pensions fraud via legalisation.
“We still need to look at ways for the industry, regulators and pension industry to work together to raise the profile of pensions fraud to stamp it out and protect savers.”
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