A code of practice to help schemes battle pension scams has been welcomed by the industry, but experts remain divided over the legal burden faced by trustees processing transfer requests.
Trustees and providers have to make critical judgment calls on the legitimacy of receiving schemes when processing transfers. These decisions require trustees to navigate a difficult terrain between their legal obligation to make transfers, and their duty to act in the best interests of the member.
The sector-wide Pensions Liberation Industry Group unveiled the code this week to provide trustees and administrators with guidelines to help them spot scammers.
The code's key principles
1 Trustees, providers and administrators should raise awareness of pension scams for members and beneficiaries of their scheme.
2 Trustees, providers and administrators should have robust, but proportionate, processes for assessing whether a receiving scheme may be operating as part of a pension scam, and for responding to that risk.
3 Trustees, providers and administrators should generally be aware of the known current strategies of the perpetrators of pension scams in order to inform the due diligence they need to undertake, and refer to the various regulators' warning flags.
Hugh Nolan, chief actuary at consultancy JLT Benefits Solutions, said it will become increasingly difficult for trustees to police requests when faced with increased volumes from April.
“The analogy would be everyone speeding in their car. It’s hard to stop individuals if you’ve suddenly got to check every single car; the volumes are working against you,” said Nolan.
According to research by life assurance company Phoenix Group earlier this year, pension savers are almost three times more likely to be contacted with messages asking them to review their pension or release some of it as cash than they were prior to last year’s Budget announcement.
Phoenix conducted 2,004 online interviews of pension savers in December 2014 and found that just under half (45 per cent) yet to retire had been contacted, either through unsolicited calls or messages sent via email or text.
Key principles
The PLIG drew on experience from across the industry to produce the guidelines and is structured around three key principles to help protect members from the rise of increasingly sophisticated scamming models, including raising awareness, having robust processes and being aware of perpetrators' strategies (see box).
It would be desirable to have changes in legislation. In the meantime [we have] to weigh up the risks and that’s what the code has done quite effectively
Ben Fairhead, Pinsent Mason
Nolan said the code "builds on the basic support of [the] Scorpion [campaign] and takes it to the next level. This is how practitioners can really step in".
However, he added his biggest concern remained the legal position of trustees.
“We’re talking about protecting members’ entire pots… at the moment the law says you have no choice but to pay it and potentially end up on the wrong side of the ombudsman,” he said.
Ben Fairhead, senior associate at law firm Pinsent Masons and legal and technical adviser on the code, thought a change in the law would make the process more straightforward, but that such a change was not imminent.
“Ultimately it would be desirable to have changes in legislation,” said Fairhead. "In the meantime [we have] to weigh up the risks and that’s what the code has done quite effectively.”
However Marcus Fink, partner at law firm Ashurst, did not think a change in current legislation would be to the benefit of trustees.
“This desire to give trustees power to block transfers could be a poison chalice for them… it could make their position even more difficult,” he said.
"At least under the current status quo, when all the necessary measures have been taken, it would be difficult to see how the trustee would be liable to repercussions."
