Last month, the Pensions Regulator (TPR) updated the Work and Pensions Committee of the House of Commons (the Committee) on progress made in the campaign to combat pension scams (access TPR's update here). In this article, we consider the update and look at ways to avoid pension scams.

Pension scams

Anyone can be a victim of a pension scam, particularly since scammers are continuously evolving their methods and utilising the internet to scam on a larger and more sophisticated scale. Scammers may aim to make money through fees, direct access to pension savings or by receiving interest on pension pots. An example of pension scamming is by promising savers early access to their pension pot through loans or "loopholes" when, in fact, savers could lose all their money and face a high tax bill from HMRC if they withdraw their pension savings before the age of 55.

£31 million was reported to have been lost to pension scams from 2017 to mid-2020 according to Action Fraud. Although the number of instances appear to have dropped in recent times, there were 420 pension fraud reports received by Action Fraud in 2022 and so pension scams are still very much a cause for concern.

TPR update

Pensions scams are unfortunately not a new threat to savers' pension savings and have therefore resulted in previous guidance from the High Court as well as a series of special reports from the Committee, the most recent of which being published in 2021 (the Report). The Report calls upon regulators to act quickly and decisively to protect pension savers from scams. The government, Financial Conduct Authority and TPR formally responded to the Report within three months and TPR has updated the Committee on its progress just last month.

In this update, TPR announces that more than 600 schemes have now made "the Pledge" (a voluntary action which pension schemes can take to demonstrate their commitment to combatting pension scams) which means that 16 million savers are now better protected. While it is promising that schemes are increasingly making the Pledge, it is clear to see that there is much more work to be done with only 600 schemes making the Pledge. Additionally, only 324 schemes have gone further and self-certified that they are fulfilling the Pledge principles. TPR is now focusing on encouraging schemes which have made the Pledge to self-certify, whilst continuing to nudge more schemes to take the Pledge.

The Pension Scams Action Group (PSAG), of which TPR is a member, have now set up a Victim Support sub-group to help minimise the impact of scams on victims. It aims to do this through various means such as improving public awareness of pension scams and identifying what legislation and regulations are required to prevent future scams. 

In its announcement, TPR also reports that it hosted a webinar in January 2023 where PSAG gave a presentation and 1,439 people pre-registered. More than 100 questions were asked to the various panellists at the webinar, which shows high levels of engagement from those in attendance. The timing of this webinar coincided with the BBC's Defenders UK programme which documented TPR's successful prosecution of two trustees of a number of scam pension schemes who pleaded guilty to fraud following a TPR investigation¹. The trustees were jailed for a total of 10 years for £13 million worth of pension scams and it is hoped that the serious outcome and associated press attention of this case will put off pension scammers from acting fraudulently. 

Avoiding pension scams

Given the risk that pension scams pose, there are several legislative measures in place which aim to prevent them. For example, the government implemented a cold-call ban making it illegal for companies to make unsolicited phone calls to people about their pensions. Breaking these rules can result in a fine of up to £500,000. The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations came into force in November 2021, limiting members' statutory transfer rights and placing  additional obligations on trustees. However, even with these measures in place, pension scams continue to occur and so we now consider additional ways in which trustees and administrators can avoid pension scams.

Look out for warning signs

Scammers have moved to sophisticated online models, using friends and family to reach people and offering "free pensions reviews". It is therefore vital that trustees and administrators keep up to date with current and evolving scam tactics and know the warning signs of a scam. Typical warning signs include:

• guarantees that they can get a better return on pension savings;
• phrases like "pension liberation", "loan", "loophole", "cashback" and "one-off investment";
• help to release cash from a pension before the age of 55 with no mention of the potential tax consequences;
• high-pressure sales tactics; and
• unusual high-risk investments which tend to be overseas and unregulated.

Reporting potential scams

If trustees and administrators are suspicious of a pension scam and/or any of the above warning signs are present when making a transfer, they can report it by submitting a crime report or an information report to Action Fraud. This will enable the authorities to investigate and prosecute scammers as well as enabling law and policy makers to get a clearer picture of the effect scams have on pensions. 

TPR’s guidance says that trustees and administrators should report if:

• they believe a scam has already happened;
• a red flag is raised when making a transfer (see below); or
• they suspect that a pension scam could be taking place or are suspicious of those involved – this may be because of other risks they have noticed such as amber flags in a transfer request.

The report should include any relevant information including the name and contact information of those involved, and related materials such as websites and brochures.

Make the Pledge

Trustees and administrators should be encouraged to make the Pledge and self-certify that they are fulfilling the Pledge principles. In taking the Pledge, trustees and administrators commit to regularly warn members about pension scams, get to know the warning signs of pension scams and report concerns about scams to the relevant authorities. In doing so, they are potentially saving their members from the prospect of being scammed.

Carry out due diligence

Trustees and administrators of pension schemes should carry out certain checks when dealing with pension transfer requests. At the bare minimum, TPR suggests that this must involve ensuring that the receiving scheme is a public service pension scheme, an authorised master trust on TPR's published list or a collective defined contribution scheme which has obtained TPR authorisation. If the receiving scheme does not fall within one of these categories, TPR says trustees and administrators must request evidence from the member to demonstrate an employment link and request evidence from the member of overseas residency if the transfer is to a qualifying recognised overseas pension scheme. Notwithstanding the above, trustees and administrators must refuse the transfer if any of the following "red flags" are present:

• Red flag 1: The member has failed to provide the required information;
• Red flag 2: The member has not provided evidence of receiving MoneyHelper guidance;
• Red flag 3: Someone carried out a regulated activity without the right regulatory status;
• Red flag 4: The member requested a transfer after unsolicited contact;
• Red flag 5: The member has been offered an incentive to make the transfer; and
• Red flag 6: The member has been pressured to make the transfer.

TPR has also established "amber flags" such as where there are high-risk or unregulated investments included in the receiving scheme and there are unclear or high fees being charged by the receiving scheme. Where such "amber flags" are present, the trustees must receive evidence that the member has taken advice from the Money and Pensions Service before the transfer can proceed. 

Conclusion

TPR's recent update confirms that it expects scheme trustees to be proactive in their approach to pension scams. Trustees should therefore consider whether they are sufficiently safeguarding their members from pension scams – for example, by including anti-scam wording in their member communications and having an open dialogue regarding the propensity of red and amber flags during transfer requests. 

Please reach out to Eleanor Hart (eleanor.hart@dentons.com) to discuss how to better protect your members from pension scams or for any other pension-related queries. 

1. TPR can pursue criminal charges against individuals and companies through various means. Here, the trustees were charged with fraud by abuse of position in breach of section 4 of the Fraud Act 2006. ↩