Let’s not mince words, scamming is a criminal activity. And let’s also be honest that the theft of consumers’ pension savings has proved hard to prevent under the current legislative and regulatory framework.
In truth, it is probably impossible to prevent all scamming completely, but we can and should narrow the open goal presented to scammers by the current occupational pension regime. That’s why we welcome the government’s pension scams consultation.
The Pensions Regulator (TPR) has been in the forefront of raising awareness of pension scams through the Scorpion campaign since 2013. We also chair the multi-agency Project Bloom which co-ordinates government, law enforcement and regulatory agencies’ response to a variety of scam and associated criminal activities. And we have been successfully involved in some of the highest profile pension scam cases.
I think we are ideally placed to identify those changes that will best protect pension scheme members. So here are the top three measures I think will make pension scamming as difficult as possible for the criminals who prey on consumers’ pension pots.
First, we need to shut down the criminals’ most common form of approach – the telephone cold call. An outright ban on pension cold calls would send a powerful message to all pension savers – ‘A cold call about your pension will be from a criminal. Just hang up!’
Victims have also been contacted by other means, so I would favour a ban on cold email and text campaigns too. This further step feels proportionate to me – let’s face it, no reputable pensions company is going to cold call, text or email you, are they?
Second, we need to help trustees and scheme managers. They face a horrible dilemma. On the one hand they are exhorted to carry out due diligence to make sure they only make transfers to legitimate receiving schemes. On the other, the Courts have found them to be at fault if they refuse to make a transfer to what they suspect is a dodgy scheme.
I should point out that the Courts aren’t wrong, but the law on what constitutes a legitimate occupational pension scheme is unhelpfully drafted.
The consultation suggests that transfers might continue to schemes which can demonstrate an earnings link with a sponsor. However, experience of trying to support trustees and scheme managers in this area suggests that this is not practical without significant legislative change, to both pensions and tax law, as the definitions in each branch of the law are misaligned. In fact this is one half of the ‘open goal’ that scammers have been all too clever at exploiting.
What I think we need instead is a ‘safe schemes list’ which trustees and managers can trust as legitimate transfer destinations – and give them the confidence to block transfer requests to any scheme which is not on the list.
But in my opinion the list cannot be based on the forty thousand or so occupational pension schemes in the UK which are registered with TPR. The cost and complexity of creating and policing such a list would be too great. Instead, I favour a restriction of a member’s right to a statutory transfer to either an authorised master trust or an FCA regulated product (S32, GPP, SIPP etc).
That’s clean and simple, it answers the legitimate calls from trustees and scheme managers to drastically reduce the cost of due diligence with which they are burdened now, and addresses the overriding consumer need to be confident in the safety of the scheme in which they save.
Further, it would be easy and cheap for trustees and scheme managers to check which schemes and providers are on the list – the FCA already publishes information about its regulated providers, and we will publish a list of all master trusts we authorise after the implementation of the Pension Schemes Bill.
Third, and finally, we need to close off once and for all the second half of the ‘open goal’ – relevant small schemes (commonly referred to as small self-administered schemes or just ‘SSAS’).
The findings of this year’s DC Trust scheme return data research, which we published last month, shows that of the 34,500 DC schemes in the market now, 32,000 are micro schemes – those with only 2 to 11 members – and of these 21,000 are SSAS. In fact this understates the size of the problem – only SSAS with two or more members are obliged to register with us. In addition to the 21,000 we know about, the government’s consultation suggests there may be in excess of 750,000 one-member SSAS.
Why is this a problem? To begin with, SSAS are exempt from many of the legal duties designed to protect members that are applicable to larger schemes. Further, the ease with which a SSAS can be established, and the minimal legal and reporting requirements for such schemes, has made them the vehicle of choice for criminals setting up a scam.
In my view, SSAS have gone far beyond the scope of the policy intent that created them. Self-invested personal pensions (SIPP), which are the subject of far tougher regulation by the FCA, are a safer vehicle for consumers who want control over the investment of their pension pot.
So, I believe that pension transfers to SSAS arrangements ought to be banned. In fact, to put a stop to their abuse, I believe that an outright ban on the establishment of any more SSAS arrangements also warrants serious consideration.
Together I think these three measures offer a practical and proportionate solution to pension scams – they give a strong, clear consumer message about cold calling, clarity and legal certainty to trustees and scheme managers, and will end the flagrant and often criminal abuse of the SSAS regime.
By Andrew Warwick-Thompson
Executive Director for Regulatory Policy