The Pensions Management Institute’s Tim Middleton says the ongoing consultation on scams is welcome and provides vital clarification for trustees dealing with suspicious transfers.
Unfortunately, this view proved to be unfounded: like the hydra, as soon as one form of fraud is addressed, more appear to replace it. The techniques used by scammers evolve continuously, and it is all but impossible for regulators to keep pace with resourceful fraudsters.
For far too long, it has been possible to make transfers to schemes where there has been no evidence that the member concerned is employed by the receiving arrangement’s sponsor
The government’s latest initiative – announced as part of the Autumn Statement and backed up with a joint Treasury and Department for Work and Pensions consultation exercise – has been to ban cold calling by those offering what purport to be free ‘pension reviews’.
While it is encouraging to note that government still takes pension scams seriously, there are mixed views as to how useful a ban on cold calling will prove to be. After all, for those whose ultimate objective is going to be illegal anyway, it would seem a ban would not be an effective deterrent. So what reforms can be made?
Easy for fraudsters to operate schemes
There is growing consensus within the industry that it is too easy for fraudsters to operate apparently legitimate pension schemes, and there are insufficient controls available to trustees to block suspicious transfer applications.
However, the consultation proposes that dormant companies will no longer be permitted to sponsor occupational schemes. It also suggests schemes be required to prove that transferring members are actively employed by the sponsor of the receiving scheme by providing evidence of earnings.
For far too long, it has been possible to make transfers to schemes where there has been no evidence that the member concerned is employed by the receiving arrangement’s sponsor. This in itself gives rise to suspicion – but not formal proof – that a fraudulent transfer is taking place.
The proposed reform would place a significant burden on receiving schemes and would provide vital clarity to trustees. This would, for example, have provided clarity in the well-known case of Hughes v Royal London of last year.
The High Court overturned the Pensions Ombudsman’s decision to back Royal London’s block on Ms Hughes’s application to transfer to a small self-administered pension scheme. Mr Justice Morgan’s reasons for doing so were: “As it is agreed that Ms Hughes was an earner by reason of her earnings from another source or sources, it follows that she was entitled to require Royal London to transfer the cash equivalent of her accrued rights under her PPS so that she would be awarded transfer credits in relation to her OPS.”
The decision was perplexing for many in the pensions industry, and there were concerns that a legal loophole had been exposed which could facilitate fraudulent transfers. Closing this loophole, as described in the consultation, would provide valuable support to trustees and would make fraud more difficult.
It is likely the war on pension scams will never be won. However, it is encouraging that more is being done to support trustees in safeguarding members’ pension rights.
Tim Middleton is technical consultant at the Pensions Management Institute
