Changes to legislation could help prevent pension liberation fraud and take the burden off trustees, the Association of Professional Pension Trustees has said, as reports emerge of increased fraudulent activity.
Two providers – Friends Life and Phoenix Group – have recently spoken out about a rise in pension liberation scams. Friends Life said it had identified 500 requests with a total value of £12m to transfer pensions into what it deemed “high-risk schemes” since August 2012
In recent months the crack-down on pension liberation fraud has intensified as regulators launched a campaign warning schemes, and the government formed a multi-agency group co-ordinated by the Home Office to investigate the matter.
In a series of letters to pensions minister Steve Webb, the council of the APPT has asked 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.
Ross Russell, an independent trustee and member of APPT, said the council was looking to restrict transfers to schemes with which the member has no employment history or is not a current member.
“I can’t think of a legitimate reason why someone would transfer their pension to a scheme with which they have no employment history,” he said, adding this should be a minor change to the legislation.
Taking trustees out of a sticky situation
This would move the burden to decide whether the transfer request is legitimate from trustees to the scheme’s administrator, who would have to undertake simple checks for the transfer to be completed.
The first APPT letter said the idea of putting simple checks in place was better than leaving the decision up to trustee boards. “In effect, this leaves trustees deciding which is worse: do they deny a member their statutory right to a transfer value payable to another HM Revenue & Customs-registered scheme, or do they go ahead anyway, notwithstanding that they could be unwittingly facilitating a fraud?”
Webb replied: “Trustees also have a role to play and should not be transferring money... where the proposed transfer is not legitimate.
“However, I do recognise some pension professionals have been nervous about the issue because of the possibility that they could be fined under the legislation for not completing a valid transfer request.”
A Department for Work and Pensions spokesperson said a cross-government project to tackle this fraud was investigating “a range of further possible solutions”.
Ian Bell, head of pensions at consultancy Baker Tilly, said something needs to be changed in law to prevent fraud. Putting in simple checks of the new schemes would "give trustees the power to prevent members from doing something foolish" and "put the power back in the trustees' hands", he said.
He welcomed APPT's proposals as a sensible solution, adding as soon as hurdles are put in the way to prevent new schemes from receiving transfers, fraud is likely to diminish.
