With the Financial Conduct Authority consulting on changes to transfer rules, the Society of Pension Professionals’ David James looks at how to update the rulebook to better protect members from potential scams.
In the pensions industry, members are at the heart of everything we do and protecting members from pension scams is an extremely important part of the industry’s role.
The financial and emotional devastation caused to the victims of pension scams should not be underestimated.
Building a secure retirement requires hard work over a long period of time and it is incredibly sad when you see someone who has worked their entire life to try to create financial security in their old age, have their pension savings taken from them by predatory criminals.
I always remember a story told to me by an excellent pension scheme trustee with whom I work. She had received a phone call from a member who said that he had lost all his pension savings to a scammer. He did not feel that he could tell his wife because he felt so ashamed and that he was considering taking his own life.
That’s the impact it can have.
How the industry can help
There is a broad alliance across the pensions industry of those who wish to fight these scams.
Excellent work is done by the Pension Scams Industry Group, the Pension Scams Action Group, the Pension Scams Industry Forum and many other industry groups, including the Society of Pension Professionals (SPP).
Protecting members from pension scams is very important to the Pensions Regulator and the Department for Work and Pensions.
I have also worked with many very good trustee boards, pension scheme managers and pension administrators who work tirelessly to protect their members from scams.
It is important that the fight against pension scams continues to be a priority.
Transfer regulations – time for change?
The 2021 Transfer Regulations, which introduced new conditions for the statutory right to transfer pension benefits, were a great step forward.
Transfers are now tested for amber flags (which require the member to take MoneyHelper guidance on pension scams) and red flags (which extinguish the statutory right to transfer).
These changes have helped trustees and providers considerably as they previously may have had to hold their nose and make transfers despite suspicions, if the member insisted on enforcing their statutory right to transfer.
However, issues with the Transfer Regulations continue to exist and it is important that they are resolved. Overseas investments are likely to be present in every receiving scheme, but under the regulations this is currently an amber flag, which slows down legitimate transfers.
Incentives to transfer are sometimes provided by otherwise legitimate pension arrangements, but these can trigger a red flag which can block the transfer.
In addition, some pension scheme trustees and providers use ‘safe lists’ of receiving pension arrangements, where they have sufficient confidence in the legitimacy of the receiving arrangement. Using a safe list means that it is not necessary to incur the time and expense to check for red or amber flags before making the transfer.
These issues put pension scheme trustees and providers in a very unfortunate position where they have to balance the risk of following the letter of the regulations, potentially delaying or blocking otherwise legitimate transfers, against the risk of following the principle of the policy intent and potentially being vulnerable in the future to challenge on the basis that they did not follow the law correctly.
It is not right that trustees and providers are currently having to run these risks and incur additional time and expense dealing with transfers where it is not clear how the regulations should be applied.
This diverts precious time and resources away from the running of pension arrangements, which could be better spent on improving member outcomes. We hope that policymakers will soon take action to make the necessary improvements in this important area.
Getting the message across
One recent development in the battle against pension scams, which may not sound that significant but which I believe is also important, is the .
The pensions industry has had a problem for a long time with messages sent but not received by disengaged members.
The use of stories to convey messages, which both educate and entertain could play an important part in bridging the gap between the pensions industry and members – which is especially important when it comes to educating members about the risks of pension scams.
David James is a member of the Society of Pension Professionals’ Defined Contribution Committee.
