Pension and investment scams are often catastrophic and can rob someone of their lifetime’s savings leaving them destitute to face a miserable older age.
The government, MPs, regulators, law enforcers and the industry are all agreed we must do more to stop these scams. To this intent, there are several proposed plans aimed at stopping the scammers.
One of these centres around stopping some pension transfers.
The government and others are worried pension scheme members are being enticed to transfer their pension savings to ‘dodgy’ pension schemes, where they can access them before age 55, or where they can invest in fraudulent investments.
The problem is that trustees or scheme administrators cannot stop a transfer going ahead if a member has a statutory right to transfer. Even when in the pit of their stomach the scheme administrator worries this is a scam, they lack the ultimate sanction of just saying no to the transfer.
Stop the transfer
Clause 125 in the Pensions Schemes Bill takes away this statutory right when certain red flags are raised, meaning when specific conditions arise scheme administrators will be able to stop a transfer going ahead. The Bill is expected to receive Royal Assent early 2021, and swiftly following that the Department for Work and Pensions (DWP) will consult on regulations which will stipulate what those red flags should be.
However, the DWP has to tread a fine line. Ideally, scheme administrators should be able to refuse a transfer when they are aware that something is wrong. This should only be after they have spoken to the member and spelt out their concerns; but still the member insists on continuing. The refusal should be a last resort.
What I would like to avoid is situations arising where the scheme administrator uses the legislation to stop the transfer of any case they have doubts over. Where concerns arise, I absolutely agree that the circumstances of the transfer need to be further investigated. The scheme administrators should communicate their concerns to the member and find out as much as they can about how and why the request to transfer has arisen. But that is completely different to an almost ‘knee-jerk’ reaction to pull the plug if the scheme administrator has doubts.
‘Nuclear’ option
Giving schemes this ‘nuclear’ option to stop transfers is only one way of stopping the scammers. There are other things that should and must be done. We must continue to educate pension scheme members through provider communications, but also national ones, such as recent ScamSmart TV ads.
Another important theme is penalising the scammers themselves. Unless they see a real negative in taking an action, scammers will continue to chance their luck and entice new victims. We need better reporting of scams and more prosecutions.
Stopping the scammers is a multi-faceted task, and there are other things industry, Government and regulators need to do. Restricting the statutory right to transfer is a good start – but only if done properly.
Rachel Vahey is senior technical consultant at AJ Bell
