Out-Law News 3 min. read
17 Mar 2015, 12:03 pm
The voluntary Code of Good Practice on combating pension scams was developed by a cross-industry group chaired by Margaret Snowden of the Pensions Administration Standards Association (PASA), and has the backing of the Pensions Regulator, HM Revenue and Customs (HMRC), Department of Work and Pensions (DWP) and other industry groups.
"The code has been prepared by a group spread across the industry and therefore captures a wealth of experience of spotting and dealing with pension scams, building on the Pensions Regulator's 'scorpion' campaign," said Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, an expert in pension liberation and a member of the industry group that developed the code.
"Hopefully it will prove to be the catalyst for a consistent and robust approach across the industry to dealing with transfer requests: the detailed due diligence guidance, as well as the easy-to-use decision sheets, should help with that in particular. Trustees and providers will continue to need to use their best judgement – there remains a tightrope to walk in terms of balancing the technically strict right of a member to make a transfer with a desire throughout the industry to protect individuals from losing their pension savings. However, the Code of Good Practice should aid that difficult path," he said.
The code emerged on the same day as the Pensions Regulator, which oversees trust-based occupational pension schemes, refreshed its advice on scams.
The material includes advice on how to spot a scam and directs trustees to the due diligence processes set out in the new industry code. It also advises trustees to ensure that scheme members contact Pension Wise, the government-backed guidance service, before taking a decision on what to do with their pension savings.
Pension scams, such as liberation arrangements, market themselves as a way of giving pension scheme members access to their savings before they reach retirement age, but can put members' savings at risk. In a typical arrangement, money representing a saver's pension rights is transferred out of their existing scheme into a new scheme, which is often of an exotic, unregulated structure and based offshore, and then making the money available wholly or partly as a cash loan back to the saver.
From next month, members of defined contribution (DC) pension schemes will have more flexibility over how they access their savings once they turn 55. The Pensions Regulator has warned that this change could encourage scammers to contact people approaching 55, seeking to exploit their interest in the change in the law. It also said that scams were likely to evolve to keep up with the changes, citing as an example a new model of scam in which members are directed to transfer into 'single member' occupational pension schemes allegedly allowing them access to flexibilities that their own occupational scheme may not yet be able to provide.
The new industry code was published on 16 March 2015 and is available for use in all transfers processed from that date. It sets out information requirements for transferring schemes; example letters; standard information to provide to members; detailed due diligence guidance and examples of potential 'red flags' which may indicate the need for further investigation of a proposed receiving scheme. It also sets out additional information to consider when dealing with transfers to a self-invested personal pension (SIPP), small self-administered scheme (SSAS) or qualifying recognised overseas pension scheme (QROPS).
In January, the Pensions Ombudsman published its decisions in three cases involving suspected pension liberation. In each of the cases, it had been asked to determine whether the pension scheme members had a statutory right to transfer their savings within six months of the request being made. Although it ruled against the individuals in each case as the intended receiving schemes were not "occupational pension schemes" for the purposes of the legislation, it criticised the providers in each case for not conducting appropriate due diligence before refusing the requests.
"The fact that the Pensions Regulator is highlighting a new model of scam whereby members are directed to transfer into single member occupational schemes is revealing in light of recent research by Xafinity that only a very small number of pension schemes will actually be in a position to enable members to access the sort of flexibilities envisaged," said pension liberation expert Ben Fairhead.
"If so, it is unsurprising that scammers are luring individuals into first transferring into bespoke schemes that will, on the face of it at least, offer the new flexibilities. This means there will still be an important role for providers and trustees to play in being alive to the risk of those approaching 55 seeking to transfer their pensions into suspicious-looking schemes that might well have been set up purely for the purpose of exploiting prospective retirees," he said.