Change in law is needed to stop scammers, experts say

While the research indicated that increasingly sophisticated scam techniques are making it harder for individuals to identify perpetrators and that scheme trustees believe more guidance is needed, trustees and lawyers have said that the law needs to change if they are to fully protect members. 

We need to be aware that there are legal as well as illegal scams

Richard Butcher, PTL

Don’t rely on paper

Paul Darlow, Xafinity's head of proposition development and a co-author of the research, pointed out some factors of concern.

Currently, regulated advisers look only at an overall transfer, without recommending how the money should be invested, allowing a scammer to step in instead.

He warned that transfer application forms omit risk factors. “Rather than relying on paper, schemes should speak to members in person, asking them whether the transfer is an independent decision or a response to a cold call,” he said.

While he advocated advising trustees to engage more directly, Darlow conceded that “the industry is saying that penalties for and efforts to shut down perpetrators are not hard enough”.

Too easy to set up schemes  

Ben Fairhead, partner at law firm Pinsent Masons, said that current laws are too strict for trustees and too lax on potential scammers.

At the moment, “it is not straightforward to find a legal justification to block a transfer”, he said.

“There are people who ask, ‘How far should the law go before it impinges on individual freedom?’”

In addition, he said “it’s often hard to confirm if a suspected scam is in fact just an unorthodox investment”.   

Since the introduction of freedom and choice, “individuals have the statutory right to make a transfer… and it is increasingly difficult for trustees to resist that”, Fairhead said.

At the same time, he said it is not overly difficult to set up an occupational pension scheme that meets regulatory criteria but is suspect.

He recommended the government bring in tighter regulations for individuals introducing people to suspicious schemes.

Beware of ‘legal’ scams

Richard Butcher, managing director at professional trustee company PTL, cautioned that “we need to be aware that there are legal as well as illegal scams”, in which scammers will exploit loopholes to “rip off” victims.

“Trustees can do nothing to stop it… a change in the law is needed to stop such legal scams,” he said.

The exacerbation of the scamming issue “is almost entirely down to freedom and choice”, Butcher said.

“We need a willing public to engage with for education to work,” he explained. Even then, “education is a long-term solution”. A more immediate remedy is needed, Butcher said. “If the government changed the law to let us block transfers, this would all go away”.

Between a rock and a hard place

Graham Wardle, managing director at professional trustee company Bestrustees, called the High Court ruling against Royal London in February “unfortunate… it has left trustees between a rock and a hard place, and is very concerning”.

He emphasised that “trustees are doing all they possibly can do in terms of communicating with members and passing on the Regulator’s information”, but they still “have a statutory obligation to make the requested transfers”.

He says more guidance from the government would be helpful. However, he said that legislation is needed to change the status quo, noting "their hands are also tied.”