Pension liberation or more accurately, pension fraud, has not gone away. Despite campaigns to warn the public of the dangers and the signs to look out for, many scheme members still transfer their benefits to arrangements where some or all of their pension money may be lost. The problem is that many will not realise the assets are gone until much later, when they try to access them. By then it will be too late. The updated guidance from tPR and the tighter HMRC registration process has helped reduce some of the dodgy deals, but it is not enough. Sadly, every device to beat the scammers drives them in another direction. Now, their gaze seems to have shifted towards SIPPs, SSASs and QROPS and particularly to spurious investment deals.
Trustees and providers take the threat of scams very seriously and worry about transfer requests. They want to do the right thing, but get different advice on what to do for the best. There are two basic difficulties. Firstly, a member has a statutory right to transfer their benefits to another arrangement, provided that arrangement is a valid one and this legally trumps any desire by trustees to refuse or delay. Secondly, schemes set up for fraudulent purposes may be registered schemes and therefore appear to be valid, which means that trustees cannot rely on registered status alone to work out whether a requested transfer is safe. Schemes applying for registration are now investigated more closely by HMRC, and information on schemes is provided to those who enquire about registration status, but it is not enough and there are not sufficient resources at HMRC to deal with all potential requests.
In an ideal world, trustees should be able to rely on the registration process and not require any further investigation, but we are not there yet.
To complicate matters further, victims of liberation scams are not always innocent. Sometimes members collude with the scammers in the full knowledge that the transfer is bogus in an attempt to “beat the system”. Such members tend to put time pressure on trustees to complete the process, which adds to the unpleasantness. There must come a point when members become responsible for their own actions.
Uncertainty over the Pensions Ombudsman’s attitude to transfer decisions does not help; whether it is right to transfer, to delay, or to refuse to comply with a member’s wishes when there is some doubt. The Ombudsman is due to decide on a large number of complaint cases, many of which involve delays to transfers. Each case is determined on its merits, but from what has been said by the Ombudsman publicly, it is likely that most of the transfers will be found to have been delayed inappropriately. This could send a shiver up the spine of trustees and providers who are doing their best to stop fraud.
Trustees prefer to err in favour of avoiding a scam, but decisions are often boiled down to the perceived consequences of not following the law. The judgment of Solomon is needed.
Additionally, the new pension freedoms announced in the 2014 Budget bring concerns that scammers will be ready to pounce and will encourage people to hand over their pensions in exchange for promises of fabulous returns. There is some evidence that this is beginning already, with offers of free guidance to ensnare the gullible. The sheer number of members accessing their pensions from April 2015 could make spotting scams even more difficult than they are now.
The Pensions Liberation Industry Group
Trustees receive conflicting and confusing advice on how to deal with potential pension liberation cases. Different administrators have developed different processes to carry out due diligence. This inconsistency is expensive, but also may inadvertently help liberators. A joined-up message from all advisers is essential.
The Pension Liberation Industry Group (PLIG), made up of key stakeholders, including trustees, administrators, pension schemes, legal advisers, insurers, consumer groups and regulators have been working on a voluntary Code of Good Practice on Due Diligence to help protect members, schemes and providers against pension scams. A Code is needed because there is no quick regulatory solution to the difficulties faced.
Version one of the Code has been reviewed by a wide group of other industry bodies to ensure it covers all the bases. There was universal support for the Code and the work of the industry group, but inevitably, the wide range of reviewers resulted in a number of contradictory requirements and the PLIG has since spent many hours reconciling the disparate views. The changing pension landscape and the shifting focus of scammers on investment vehicles make it challenging to define good practice that will stand the test of time. To address this, the group has drafted a set of Principles to support the Code and this will direct stakeholders’ focus on what is important, while enabling existing good practice to be followed. Version two of the Code and its Principles will be released for review in early November 2014, with the intention to publish the final version early in the New Year.
The Code is intended to subtly change the balance towards the receiving scheme and the member. The ceding scheme needs to ask relevant questions, but the receiving scheme is the one that must provide the satisfactory evidence. If it does not, this will create a “red flag” and the trustees will have grounds to delay until it does. A combination of due diligence information is required because we all know how easy it is to clone pension scheme information. Equally, there needs to be a mechanism whereby “tried and trusted” transfers can take place with less due diligence to reduce time and effort.
A key objective of the Code is to obtain the support of the Pensions Ombudsman and an agreement that it will take compliance with the Code Principles into account when determining specific complaints about pension transfers. This would help to restore stakeholder confidence in this difficult area.
While we believe the Code will be of benefit in setting out good practice principles, the PLIG is also considering and will put forward recommendations for legislative and regulatory change to ensure that the Code can operate in the best environment over the longer term.