Calls for govt to change transfer rights to halt scams

A report by provider The People’s Pension and think tank the Police Foundation, published on Monday, pointed out that although current rules allow providers to flag potential fraudulent activity to savers, neither they nor the Pensions Regulator are able to stop transfers in their tracks.

They are calling for new powers for schemes to stop any transfers where scammers are suspected to be involved.

This comes as the report found the majority of pension scheme members (60 per cent) choose to go ahead with a transfer even after being made aware of scam risks. 

Out of 121 pension companies, the report found that three-quarters highlighted savers’ rights to transfer as a major issue when trying to stop scams from occurring.

We can’t arrest our way out of pension and investment fraud and that’s why efforts at the front end to prevent scams are so important

Rick Muir, Police Foundation

In addition, more than half of the companies said savers who insisted on making a transfer were a major challenge, with some saying insistent clients had been “primed or groomed by scammers to not engage or listen to advice from ceding companies”.

Under current rules, if a provider refuses to carry out a transfer they could be at risk of legal action.

In 2016, Royal London was successfully taken to court by a scheme member after it identified and blocked a suspicious transfer request.

The People’s Pension and Police Foundation proposed that individuals who disagree with the regulators’ or providers’ decision to stop the transfer be given a right of appeal to the Pensions Ombudsman.

Phil Brown, director of policy at The People’s Pension, said: “Currently, pension providers can flag a potential scam to a customer, but we can only stand by and watch if the individual chooses to proceed with a risky transfer that could result in them losing all their savings.

“We’re calling on the government to provide pension providers and regulators with the powers to stop risky transfers and ensure victims of fraud aren’t hit with having to pay tax penalties on their lost savings.”

Victims paralysed by tax treatment

The report also calls on schemes and providers to perform enhanced due diligence checks on transfers and report any suspected scams to the Pensions Regulator.

In addition, it asks HM Revenue & Customs to ensure victims of pension fraud are not liable for tax penalties.

According to the report, victims of fraud are often put off engaging with the police due to the prospect of a tax penalty they cannot afford.

Even when they do approach the police to report the scam, their HMRC status as tax avoiders erodes their credibility as witnesses for the prosecution of the scammers, it stated.

Rick Muir, director of the Police Foundation, said: “We can’t arrest our way out of pension and investment fraud and that’s why efforts at the front end to prevent scams are so important.

“Nonetheless, in terms of financial losses and overall wellbeing, pension scams are among the most harmful types of fraud and it is therefore vital that they are taken seriously by law enforcement.”

A spokesperson for TPR said: “Pension scams devastate lives. On average a victim loses £82,000. Once that money’s gone, it can be gone forever.

“TPR and its Project Bloom partners are dedicated to stopping scammers. We are working together to tackle scammers head on, using our powers to investigate and prosecute. We will continue to bring scammers to justice.”

Regulators redouble efforts

In August, TPR and the Financial Conduct Authority relaunched theirscam awareness campaign and called in football commentator Clive Tyldesley after finding that football fans were highly likely to be drawn in by fraudsters.

They revealed that more than £30m had been lost to pension scams in the past three years alone, and individual losses ranged from less than £1,000 to as much as £500,000, with the typical victim being a man in his fifties.

Margaret Snowdon, chair of the Pension Scams Industry Group, said: “As we all know, the issue of pension scamming is not going away; if anything, it is on the rise as more and more questionable individuals have recognised the extreme vulnerability of pension scheme members.

“This has only increased during Covid-19 when finances for some have become even more strained.”

The increase in pension scams has led the Work and Pensions Committee to launch an inquiry on this topic, as part of broader work looking into the impact of the pension freedoms.

Pension freedoms were introduced in 2015 with the aim of giving people aged over 55 more control over how and when they can access their savings.

But due to this level of flexibility scams have boomed, leading former FCA chief executive Andrew Bailey to admit that the regulator has been playing catch up since the reforms.

This story originally appeared on ftadviser.com