Pension scams have always been part of the retirement landscape. After all, this is an asset worth thousands of pounds, which people generally under appreciate and little understand. However, since the introduction of pensions freedom and choice, pension scams have taken off in a big way. It’s estimated more than £42m has been lost to ‘pension liberation fraud’ since April 2014, when George Osborne made his big announcement – although that’s likely to be the tip of the iceberg.
Government is aware of this activity. Pension Wise, the Pension Advisory Service (TPAS) and ActionFraud have taken steps to alert people to the threat of pension scams through its Project Scorpion. However, the government has been pushed towards tougher action? and has announced its decision to ban cold calls.
The ban would extend to all UK calls about pensions, except where there is an existing relationship with the individual, or where the individual has requested further information from the company. And it doesn’t just apply to telephone calls; texts and emails will also be caught in the net.
Let’s be realistic - this ban is far from perfect. It only applies to UK calls or overseas calls organised by a UK company, so overseas companies can still call at will. And the exceptions will mean some fraudsters will find ways around the rules and still manage to cold call some individuals. After all, if someone is hell bent on indulging in fraudulent activity, they will find ways of doing so.
But it is an important starting point. We want to be able to say to individuals loud and proud that no-one should ever be cold calling you about a pension. But to do that we need the legislation in place.
The next stage is to get the important message across. We need a robust and simple media campaign as people struggle to engage with pensions, and get blind-sided by the vast sums of money involved. The analogy with ‘5 fruit and veg a day’ may be tired – but it’s relevant. We need a simple message – ‘just hang up’.
The sticking point though is the timescale. The consultation feedback was sketchy to say the least – just saying draft legislation will be brought forward when parliamentary time allows. Since then it’s rumoured the legislation will be in the Finance Bill (due to be published in a couple of weeks) but the more complex elements may need secondary legislation.
As well as banning cold calls, the Treasury is going to limit when individuals have a statutory right to a pension transfer. The criteria will be limited to a transfer to a personal pension, an authorised mastertrust, or an occupational pension scheme where there is a genuine employment link. Interestingly, currently that excludes transfers to QROPS. But the Treasury has vowed to work with the industry to formulate a set criteria that fits genuine QROPS transfers, as well as how individuals can evidence an employment link to a company pension scheme.
Pension schemes could still allow other (non-statutory) transfers to go ahead, but it will be up to the scheme’s discretion; individuals couldn’t insist on it. Due diligence will continue to play an important part in pension schemes deciding whether a transfer is legitimate or not. The due diligence standards devised by the industry are working well, and the government intends to take this a step further and legislate to ensure due diligence has been carried out.
The final prong to stopping the scammers is to generally only allow registration of a pension scheme where the sponsoring employer is an active company. If the company is dormant then the registration may be refused, and existing schemes may be de-registered. However, this isn’t a hard and fast rule. HMRC will have discretion to go against this general rule of thumb – for example in the case of registering a new Sipp.
Overall, I don’t think we can criticise the government’s plan to tackle pension scammers. My greatest concern is timescale. There is a very great danger of losing any impetus due to lack of parliamentary legislative time. And unfortunately, when it comes to scams, time is money. To stop pension scams, we need to take action today. Otherwise, at the blink of an eye, another £42m will soon be lost.