Regulator: liberation fraud more sophisticated threat

According to the regulator’s 2012 annual report, pension liberation fraud rose to at least £400m by the end of the year compared with £200m at the end of 2011.

But reports suggest that the regulator’s scorpion-branded anti-fraud communications have successfully deterred members from making transfers.

Fraud has become more sophisticated “in terms of the models, the marketing and the targeting”, said Andrew Warwick-Thompson, executive director for defined contribution, governance and administration at the regulator.

One of the things Project Bloom, a joint taskforce including the regulator, Department for Work and Pensions, HM Revenue & Customs and the Serious Fraud Office, has identified is that pension liberation is now organised crime.

“It is franchisable. There are people out there that are cloning these schemes… there are identifiable models that keep appearing again and again,” he said.

The regulator is now actively attacking major liberation schemes. The body is fighting 26 liberation scheme models and concentrating activities on four models.

“The regulator has identified two key models in the market and we are going to specifically attack those in the courts,” said Warwick-Thompson.

In one case going to court shortly, the regulator is seeking a ruling about whether the schemes in the model are shams or occupational schemes.

“If we are successful in taking down that model, then the whole of the law enforcement industry can say those are sham schemes and move in to take them down,” he said.

How to protect your members

The regulator has asked trustees to make sure that when members request a transfer they are sent the fraud awareness pack, which warns the members of the characteristics of schemes that may be engaged in fraudulent activity and urges the members to ask questions.

Richard Bryant, head of trustee services at pension advisers Atkin, said defined benefit scheme savers at one employer he had worked with had been specifically targeted by pension liberation offers.

Before making the transfers, Atkin wrote to the member asking if they would like the transfer to be completed. The scorpion pack was also included.

“None of the members have confirmed the transfers. Warnings from the regulator have worked so far,” Bryant said.

Earlier this month, the Association of Professional Pensions Trustees called for a change to secondary legislation of the 1993 Pensions Act to restrict transfers to occupational schemes which do not fit certain requirements, including those that are less than a year old.

In a letter to pensions minister Steve Webb, the APPT said: “One clear step that needs to be taken to prevent such fraud is for HMRC to take a more considered approach to the registration of new schemes.”

Consultants have urged schemes to be cautious of making transfers to schemes that have been recently set up, as they could be the most likely to be related to this activity.

HMRC recently announced its intention to crack down on fraud by deregistering 500 “dubious” pension providers and is reviewing its registration procedures for providers..