Pension scams: Time to fight back

British Olympic gold medallist Mo Farah’s running coach Alberto Salazar found himself at the centre of a storm of allegations in a recent BBC Panorama documentary, the latest in a string of high-profile cases in which corners of the athletics world have been tarnished with the doping brush.

The medics, coaches and administrators behind the use of prohibited drugs in sport willfully outpace testers by pushing the boundaries of pharmaceutical science.

We must start with the members themselves and communications... Trustees should be referring the member to Pension Wise, which will give detailed information to members of the threats of pension scams

Andrew Warwick-Thompson, The Pensions Regulator

Since the April 6 introduction of new pension flexibilities, the ‘science’ behind pension scams has undergone its own evolution.

Freedom and choice may have brought a new generation of pension scammers, but the industry has stepped up its defences against this dark art.

While the liberation model continues to target cash-hungry younger members, scammers are homing in on the new freedoms landscape and a fresh swath of targets.

Scamming models are now increasingly investment-based, offering high-yielding opportunities from goat farms in Cape Verde to beach huts in Tahiti.

However, unlike the sporting arena, where doping practices outpace testers’ science, trustees and the industry are catching up with the scammers, say industry experts.

Adrian Kennett, director at professional trustee company Dalriada, says: “The whole issue is just as prevalent as it always was… it’s a constantly developing market.

“But members are increasingly aware. Are the testers catching up? Probably.”

Outsmarting scammers

“It has to start with the consumers,” says Andrew Warwick-Thompson, executive director for defined contribution, governance and administration at the Pensions Regulator, on how it and the wider industry should tackle a new generation of scammers.

“We must start with the members themselves and communications,” he says. “[Trustees] should be referring the member to Pension Wise, which will give detailed information to members of the threats of pension scams.”

With its relaunch of the ‘scorpion’ awareness campaign back in March, the regulator provided consumers, trustees and administrators with a user-friendly update on the shifting guise of scamming models.

This month the regulator is working with Citizens Advice and Trading Standards Services to raise the profile of all financial scamming activity during Scam Awareness Month.

“We are simply upping the coverage,” says Warwick-Thompson, adding: “We’re expecting more scams… related to investments of some sort, people will have taken cash out of their pension and will be enticed into high-yielding investments.”

New materials from the regulator with further information and risk warnings for consumers and the industry will also be released towards the end of the month.

Ben Fairhead, partner at law firm Pinsent Masons and Pensions Liberation Industry Group member, says: “As much should be done as possible to highlight the risks of scams.

“I think there may be people out there who are aware of the risks but are very persistent in accessing their funds.”

Trustee confidence

Pension liberation scams continue to target pre-retirement members with lucrative offers of early access to cash by transferring into an external scam scheme.

When processing member transfers, trustees and providers have to make critical judgments on the legitimacy of receiving schemes and may come under pressure from cash-hungry members.

Trustees must therefore navigate a difficult terrain between their legal obligation to make transfers and their duty to act in members’ best interests.

Back in March the sector-wide PLIG provided trustees and administrators with guidelines to help them spot scammers.

The fact that the regulators support the principles of the code helps encourage trustees to act with common sense

Margaret Snowdon, PLIG and JLT Employee Benefits

Margaret Snowdon, chair of PLIG and director at JLT Employee Benefits, says the new code gives trustees the tools to exercise judgment with confidence.

“The fact that the regulators support the principles of the code helps encourage trustees to act with common sense,” she says.

Under the new code trustees must check whether or not a member has the right to a transfer, and if so try to find out if the receiving scheme is valid before carrying it out.

“The due diligence in the code helps here, as it sets out reasonable questions to ask receiving schemes and if information is not given, the onus is on the receiving scheme or member to provide it before transferring,” says Snowdon.

Earlier this month the pensions ombudsman backed provider Royal London’s due diligence in its decision to refuse a member transfer.

Snowdon acknowledges that pension schemes may not always be able to “chase cases down the rabbit hole”, but says the code should shore up trustee defences against challenges from members down the line.

“The [ombudsman] has stated that he will take into account what is expected practice at the time, so this helps trustees,” she says.

Ian McQuade, client director at consultancy Muse Advisory, says industry-wide efforts have dramatically boosted trustees’ efforts to raise awareness and enhance protections over recent months.

“While the risks are still there, there has been a marked shift in protections being in place,” he says, adding: “A lot of schemes and administrators are starting to ask more questions – I know schemes that ring up the member about their transfer.”