The government has launched its consultation on pension scams, proposing bans on pension-related cold calls, limits on the statutory right to transfer and tighter regulations for setting up potentially fraudulent schemes.
Chancellor Philip Hammond announced his intention to tackle pension scams, which have seen a marked increase since the introduction of freedom and choice, in this year’s Autumn Statement.
This is more a wake-up call to the public than the scammers, who are aware of the consequences anyway
Malcolm McLean, Barnett Waddingham
The new proposals, which were released by HM Treasury and the Department for Work and Pensions on Monday, acknowledge the scale of the problem posed by scams, which often do not amount to outright fraud.
“In [some] cases the firm’s conduct may fall short of amounting to fraud, but the scam may nevertheless result in a pension saver losing their life savings or facing a considerable tax bill,” the consultation said.
No more calls
In response, a complete ban on pension cold calls originating from within the UK has been proposed, in recognition of the fact that the majority of scams are initiated by telephone.
Those who breach the ban would be liable to civil lawsuits brought by the Information Commissioner’s Office, which could issue fines of up to £500,000.
But the fact the legislative arm will not be able to reach those operating from outside the UK is an issue, according to Malcolm McLean, senior consultant at Barnett Waddingham: “They can’t do anything about calls from abroad, which has always been a problem.”
If scammers are indeed deterred by new legislation they might, he suggested, place cold calls from outside the UK before carrying out all subsequent interactions from within.
“This is more a wake-up call to the public than the scammers, who are aware of the consequences anyway,” said McLean.
There is also a question regarding other means of contacting people. While calls represent the vast majority of the problem, experts agreed that the rules should be extended to cover emails and text messages, which appear to be omitted from the consultation.
Others suggested that the new rules might impact the business of financial advisers who, while legitimate and registered with the Financial Conduct Authority, have been gaining new clients through unsolicited calling.
A bit less freedom and choice
The consultation also mooted new limits on members’ statutory rights to transfer into suspicious schemes, a move which steers away from the tone of individual responsibility introduced with the pension freedoms in 2015.
Previously, providers and trustees had been forced to allow a transfer to a registered pension scheme, even where there were concerns about a possible scam.
In February this year, the High Court overturned a Pensions Ombudsman ruling which had allowed Royal London to block the transfer request made by a client who was not an earner in relation to her small self-administered scheme.
Under the proposed system, transfers would only be permitted into schemes run by FCA-authorised entities, genuine occupational schemes where there is evidence of regular earnings in relation to the scheme, or authorised mastertrusts as defined by the Pension Schemes Bill currently before parliament.
That the required primary legislation would not be the only pensions legislation to pass next year could prove to be a sticking point for quick progress on fraudsters.
Chancellor proposes ban on cold calling, refrains from pensions tax overhaul
In his first and last Autumn Statement, chancellor Philip Hammond swapped the timing of the Budget and the statement but had comparatively little to say about pensions for now; one of the larger measures – a consultation into pensions fraud – was welcomed by the industry.
“Primary legislation does take a long time, and there is already a pensions bill going through,” said Kate Smith, head of pensions at provider Aegon, but she welcomed the government's intent.
300 Scots hit by pension scam as advice gap persists
Scottish police are investigating a £10m pension liberation fraud that has targeted more than 300 people north of the border – a reminder to the industry of members’ vulnerability to evolving fraudulent operations.
When rigorous vetting processes had previously led Aegon to talk to customers about suspicious transfers, they “would rather believe the scammer, who they didn’t know was a scammer”, Smith said, and noted that some backlash might be expected by insistent clients.
Dormant companies
David Brooks, technical director at consultancy Broadstone, urged regulators to focus on making it difficult for fraudulent schemes to be set up. The consultation suggested only allowing non-dormant companies to register new schemes.
He added that the proposed measures would be unlikely to eradicate scams, but noted they are a step in the right direction: “Firms will reinvent themselves and work around the rules. But that isn’t to say this is not a good first step.”
