“The proposed ban on pensions cold calling and the measures to make it harder for fraudsters to open pension schemes are huge steps forward, but they will only be worthwhile if accompanied by a meaningful effort to drive fraudsters out of the retirement market for good”, says Tom Selby, senior analyst at AJ Bell.
“Pension fraudsters are sophisticated criminals and they will already be planning their next scam because the size of the prize following pension freedoms is only going to get bigger. The authorities and the industry must be equally alert and should be thinking about the further measures that could be taken to combat pension fraud over and above the ban on cold calling.
“Based on our experience of trying to protect our customers from pension scams over the past few years, there are a number of further measures that should be considered.”
1. Permitted investments list for Self-invested Personal Pensions (SIPPs). Before pension simplification in 2006 a list of investments that were allowed to be held within SIPPs was published. Reintroducing this list would make it harder for pension fraudsters to succeed with scams that are based around ‘too good to be true’ investments that are not on the permitted list.
2. Mandatory professional trustees for Small Self-administered Schemes (SSASs). Another requirement that disappeared with pension simplification in 2006 was for all SSASs to have a professional trustee, referred to as a ‘pensioneer trustee’. They were independent and recognised by HMRC as having the knowledge required to run SSASs. Reinstating the requirement to have a professional trustee would make it significantly harder for pension fraudsters to set up a SSAS in order to use it as a vehicle to trick people into giving away their pension savings.
3. Single member pension schemes must register with The Pensions Regulator. Currently, an occupational pension scheme that just has one member, often a SSAS, does not have to register with The Pensions Regulator in the same way that schemes with multiple members do. Requiring single member schemes to register with The Pensions Regulator would make it harder for pension scammers to set up these schemes and use them for fraudulent purposes.
4. Naming and shaming recognised pension scams. All known current and historic types of pension scams should be made publicly available by HMRC. A similar approach is already taken by HMRC in relation to tax avoidance schemes (https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight) and extending this to pension scams would enable people to check if they are being targeted by recognised scams.
5. Early access to tax free cash in financial hardship. Where financial hardship can be evidenced, people should be permitted to access the portion (commonly 25%) of their pension savings that they are entitled to receive tax free. If people in financial hardship were allowed to access some of their pension savings in this way, they would be less likely to turn to scammers to get at their funds.
6. International co-operation. Many pensions and investment frauds now contain an overseas element – be it the location of the asset involved or the jurisdiction from which a cold call originated – so working with authorities outside the UK is going to be important to ensure fraudsters don’t simply relocate and carry on with the exact scams that they are perpetrating today.
Selby continues: “It would be all too easy for the Government and the industry to sit back now and say ‘job done’, but the ban on cold calling should just be a starting point. Trust in pensions is slowly starting to recover from a series of misselling scandals in the 1980s and 1990s – but that trust is brittle and could easily be shattered by fraudsters.
“If Government, regulators and the industry are to truly restore public faith in the UK retirement system, we must pursue a relentless and continuous anti-scams agenda.”