Pension scams remain a current hot topic with challenges for consumers, the pensions industry and regulators alike.
Protecting pension savers – five years on from the pension freedoms
The Work and Pensions Committee has published a report calling on the Government to act quickly and decisively to protect pension savers.
In 2015, those with DC pensions were given greater choice in how to access their pension savings, known as the pension freedoms. Five years on from this, the Work and Pensions Committee has launched a three-stage inquiry into protecting savers, with the first stage focusing on pension scams.
Initially, the main concern was about pension liberation, which saw savers transferring their benefits to a scheme promising them access to cash often before the tax rules allowed (usually before the age of 55). The pension freedoms opened a wider range of investment choices to pension savers, which has triggered a shift towards investment-focused scams.
The report warns that commonly-cited figures of the scale of pension scamming are likely to substantially underestimate the problem, as they are likely to be underreported. It adds that the situation is likely to be getting worse, with the Coronavirus pandemic providing scammers with new opportunities. The lack of a definitive measure of the issue makes it difficult for policy makers and the public to make an appropriate judgement of the level of concern needed.
The cold-calling ban introduced in January 2019 has seen scammers move online and towards social media.
The inquiry found that regulators appear powerless to hold online firms to account for hosting scam adverts in the same way they would for traditional media such as television or newspapers. Tech firms such as Google are being paid to advertise scams while also being paid by regulators to warn about scams.
The report calls for these tech firms to be held to account for facilitating scam adverts and recommends that paid-for adverts on online platforms should be covered by the same rules as adverts in traditional media.
The Committee has called on the Government to rethink its decision to exclude financial harms from the upcoming Online Safety Bill and use it to legislate against online investment fraud.
Although the Financial Conduct Authority states that there have been a large number of prosecutions involving scams, a Freedom of Information request shows that there were only 25 convictions between 2012 and 2020. The Committee warns that the fragmentation of reporting, investigation and enforcement has made combating scams more difficult.
The report recommends that the pension fraud taskforce should be strengthened. The existing Project Bloom should be renamed the Pension Scams Centre, with dedicated funding and staff to manage a pension scams intelligence database alongside the police.
The Committee welcomes the provisions in the Pensions Schemes Act 2021 that will allow the statutory right to transfer to be restricted where there is a sign of a pension scam. It suggests that a review of the system of red and amber flags used to block or pause a transfer should be published within 18 months of the regulations coming into operation to allow any further legislative changes to be made.
New Pension Scams Industry Group (PSIG) Code
PSIG has published version 2.2 of its Code of Good Practice on Combatting Pension Scams.
PSIG was established in 2014 to help to protect pension scheme members from scams, developing and launching the first Code of Good Practice for use by all in the industry in 2015, before publishing version 2.0 on 22nd June 2018 and version 2.1 on 10th June 2019.
The latest update, effective from 1st April 2021, reflects recent regulatory and legislative changes as well as the evolving nature of pension scams. Changes have also been made to improve usability.
Pensions Minister calls for support on pension scams
The Pensions Minister has urged pension schemes to share data with PSIG in the fight to combat pension scams.
Pensions Minister, Guy Opperman, has written to approximately 90 pension schemes, telling them to begin sharing data with the PSIG in an effort to create a clearer picture of the scale of pension scams. Data shared with PSIG is used to inform Project Bloom, a multi-agency taskforce that coordinates efforts to combat pension scams and fraud.
There are currently 51 organisations – including Capita – involved in the Pension Scams Industry Forum.
Capita comment
The battle against pension scams continues and the guidance materials recently published by PSIG will provide trustees and administrators with more structured support. A consistent approach across the industry will also help to shape expectations in what is becoming an increasingly involved process.
However, as per the recent Work and Pensions Committee report, it is only right that the regulators lead from the front in a coordinated and highly visible approach. Unfortunately, the identification of inappropriate investments for retirement benefits is not a precise science and arguably more has to be done to regulate those advising on transfers and those offering access to these opportunities.