In this article, I will be talking about the new regulations being introduced that are intended to give pension scheme trustees and managers the power to block transfers under certain conditions where a scam is suspected.
But how did we get to this point?
Pension scams are something that have steadily moved from the depths of the financial pages to front-page headlines in recent years – to the extent that there have even been television programmes about them.
The launch of personal pensions in 1988 gave opportunities for unscrupulous salespeople to earn fees and commission payments on the back of advice and recommendations that were later shown to have been questionable. In 1994, the then-industry regulator, the Securities and Investments Board, announced a review of the sale of personal pensions between 19 April 1988 and 30 June 1994. This included a review of advice given to individuals to opt-out of employer-sponsored pension arrangements and advice to transfer benefits from defined benefit pension schemes into personal pensions.
In the early to mid 2000s the words ‘pensions liberation’ became familiar. An occupational pension scheme would be set up and people invited to join. They would be enticed with promises of sign-up bonuses and early access through “loans” secured against the pension. However, the unwitting member would not be told that such payments would be “unauthorised” and so subject to tax charges applied by HMRC. By the time HMRC made contact with the member, the “loan” had been spent, the member had no means of paying the significant tax penalties and trying to unwind the transfer or even take benefits from the new arrangements proved impossible as often there were no assets left in the scheme to pay out.
In 2013 the Pensions Regulator, HMRC, the FSA and Serious Fraud Office teamed up to launch the scorpion campaign. That same year HMRC updated its processes for dealing with such cases with the aim of having fewer sham arrangements set up. The following year, tying in with the first refresh of the scorpion campaign, the term ‘pensions liberation’ stopped being used in favour of the more blunt term ‘scams’.
In 2015, the same year as the pension freedoms were introduced, the Pension Scams Industry Group launched its Code of Practice for use across the industry. This was substantially updated in June 2018, with further incremental updates in June 2019 and April 2021 and I know a further update is expected imminently.
In July 2016 Panorama ran an entire programme on First Review Pension Services - an unregulated introducer who was cold calling individuals offering free pension reviews and who were directly connected to a hotel group investing in Cape Verde. Whilst many of us in the industry, including LCP, were well aware of the organisation and had, for some time, been speaking to members who had been cold-called by them, this marked a change in awareness-raising and the BBC played a part in this by agreeing to keep the episode available online for over a year after the programme was broadcast. Incidents like this helped to bring about the cold-calling ban which came into force in 2019.
Ever since 1988, the issue for many pension scheme trustees was that the members had a statutory right to transfer their benefits and the scammers would always remind them of this, whilst adapting their methods to ensure they could negotiate their way around any obstacles be it regulatory or administrative placed in their path. Trustees and administrators were frustrated that despite their best efforts, members could choose to disregard their concerns and rely on this statutory right to force the transfer to proceed.
This very potted history takes us to the new regulations and the subject of today’s presentation.