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Combating Pension Scams

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Ian Neale addresses the changing nature of pension scams and how the industry plans to tackle them.

Amid a minor flurry of government activity relating to pensions in the past week, a really significant publication passed almost under the radar. On 22 June the Pension Scams Industry Group (PSIG [], originally the Pension Liberation Industry Group) released v2 of "Combating Pension Scams: A Code of Good Practice".

The original version published in 2015 set out the due diligence steps to be taken in order to help identify whether a receiving scheme is one to which a transfer payment should be made. Most schemes, providers and reputable advisers have adopted it. This update - which has been warmly welcomed by the Minister for Pensions and Financial Inclusion - incorporates the following key changes:

- promotion of calling members directly as part of due diligence information collecting: an early phone call will usually help identify the reasons for the transfer request and the source and circumstances of the request.

- expanding protection to include asking insistent customers to contact The Pensions Advisory Service (TPAS) for impartial guidance which will help them to better understand the risks.

- recent developments: an update on QROPS regulations; the Hughes v Royal London judgment (which ruled that a member has a right to a statutory transfer even where no employment link exists with the receiving scheme employer); the growth in “international SIPPs” as scam vehicles; and acknowledgement of the government’s proposed forthcoming cold calling ban.

- detailed guidance on Action Fraud reporting (Appendix D) and encouraging providers and schemes to report potential scams.

- more example letters (Appendix A).

- example case studies portraying real decisions by schemes (Appendix E).

According to Citizens Advice, since April 2015 10.9 million consumers have received unsolicited contact about their pension. Pensions industry estimates suggest that even now, between 5% and 10% of transfer requests raise red flags on due diligence checking; more if the checking includes a conversation with the member.

Scammers are evolving their tactics. The Code notes that fewer scams involve traditional pension liberation, with more using investment schemes and social media to entrap members. While a recrudescence of ‘factory gating’ – the original mis-selling approach of the early 90s – has appeared at British Steel sites this year, generally scams have become more complex. Meanwhile the huge growth in transfer requests from defined benefit scheme members seeking flexible access to their benefits has fuelled the problem.

As the Code acknowledges, the difficulty is that the member may have a statutory right to transfer, but the trustee or provider has regulatory and other general responsibilities to act with due care and in the best interests of scheme members: whether the transfer is blocked or allowed, there could be negative consequences of the decision.

The Code details a due diligence process covering the following stages:

- Transfer and Retirement Packs
- Transfer Request - Initial Analysis
- Additional Information Requests
- Further Due Diligence
- During the Due Diligence Process
- Determining Pension Scam Risk
- Refusing a transfer and reporting
- Reporting to The Pensions Regulator
- Member appeals
- Discharge forms and insistent members
- Internal “white list” approach
- Example letters (Appendix A)

The PSIG will consider implementing an online page for those who follow the Code to indicate publicly that they do so.

The Pensions Administration Standards Association (PASA) and The Transfers and Re-registration Industry Group (TRIG) are currently working to improve due diligence and where possible, speed up the transfer process for bona fide transfers. Emerging guidance to complement this Code of Good Practice is expected to be published during 2018.

Ian Neale, Director, Aries Insight.