Govt clamps down further on pension scams

8 November 2021

The Government is clamping down further on pension scams with stronger protections for pension savers.

New regulation, which comes into force on November 30, will give pension providers the power to prevent a transfer request if they see ‘red flags.’

These flags include if a member has not responded to a request for information in relation to a suspicious transfer; a member has indicated they have received financial advice from a firm without the appropriate regulatory permissions; a member has requested the transfer following an unsolicited request from an individual or firm they had no existing relationship with; or a member has been pressured or indicated they felt pressured to make the transfer.

In other circumstances, where the provider sees ‘amber flags’ indicative of a potential scam, members will have to provide evidence that they have taken scam specific guidance from the Money and Pensions Service before they can transfer.

Master trusts, CDC schemes and funded public sector schemes are deemed ‘safe destinations’ and will effectively be exempt from the requirements.

The new regulations follow a number of scams offering early access to pension cash or time-limited offers which have resulted in pension savers being conned out of large sums of money. Despite the publication of material warning industry and consumers on how to spot a pension scam, the government said people are still losing their savings to scammers, with more than £30 million lost to pension scams between 2017 and 2020, according to the FCA and The Pensions Regulator.

Tom Selby, senior analyst at AJ Bell, said: “Unscrupulous scammers have ramped up their activity during the pandemic, spurred by the increased financial vulnerability experienced by millions of people during lockdown. Most of these scams now occur outside pensions, with fraudsters often targeting people aged 55 and over by encouraging them to shift their hard-earned retirement pot into a sham investment.

“Nonetheless pension-based scams do still exist, with the focus often on facilitating access before age 55. Given the terrible impact they have on victims – who often end up losing most if not all of their pension – the Government is right to hand schemes greater power to protect members.

“Crucially, it will be up to pension schemes to decide whether a transfer is suspicious or not. Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.”

Jon Greer, head of retirement policy at Quilter, commented: “These regulations will be a highly effective tool for pension providers and trustees to safeguard people against pension scams.

“Until now people have had a statutory right to transfer their pension which results in a ludicrous situation where a pension provider is powerless to prevent a customer moving their money to a highly suspicious ‘pension scheme’. This has resulted in pension providers asking customers to sign a disclaimer before they can allow the transfer to proceed.”

However, Greer warned that pension members will still need to take extra steps to protect themselves.

“The regulations do not empower pension providers to raise a ‘red flag’ where they have a reasonable belief that a customer has been contacted by an individual or organisation that is subject to a warning on the FCA’s warning list. While the FCA’s warning list is by no means a comprehensive list of scammers, it is illogical to exclude it given it’s such an important tool in pension schemes arsenal to detect and prevent fraudulent transfers.”

Professional Paraplanner