Buchanan: Government should close legal gaps to stop scammers

Readers of a similar vintage will remember, perhaps with nostalgic fondness, practice notes IR12 and IR76 and joint office memoranda in use at the time.

Today those clear lines have become blurred as a result of legislation and also, more recently, court rulings. The current legal position is confirmed in the recent Royal London pension transfer case, which builds on the earlier Pi Consulting case and overturned an earlier determination by the pensions ombudsman.

The conclusions of the Royal London case are that:

These conclusions... highlight how easy it is to establish an occupational pension scheme, without undergoing robust regulatory requirements

(a) any company can establish an occupational pension scheme, even if it has only one director, who need not be a member (although HM Revenue & Customs has the power not to register, or to deregister, a scheme under certain circumstances);

(b) anyone can be admitted to this pension scheme without needing to be employed by the company that established it; and

(c) most pension scheme members would have a statutory right to transfer into this pension scheme provided that they have earnings from any source.

These conclusions ignore the use of the word ‘occupational’ in the statutory definition and highlight how easy it is to establish an occupational pension scheme that can be offered to the public, without undergoing the robust regulatory requirements the Financial Conduct Authority imposes on authorised operators of personal pension plans.

Restrict and regulate

The pensions minister has promised action to close the regulatory loophole and better regulate those who establish mastertrusts to ensure members are not left high and dry when some of these trusts fail to achieve critical mass.

The government should also take the opportunity to restrict the statutory right to transfer to an occupational pension scheme, so that it exists only where the member is in receipt of earnings from an employer that participates in the receiving scheme.

Such a regulatory change would effectively reverse the Royal London decision and make it that bit harder for scammers to trick people into transferring out of their retirement savings to a sham pension scheme.

Then again, the fraudsters may already have turned their attention away from transfer-out scams to focus instead on people over age 55, who might be foolish enough to access their hard-earned retirement savings to invest in some dodgy time share in the Cape Verde Islands.

Duncan Buchanan is president of the Society of Pension Professionals and partner at Hogan Lovells International