Keeley Paddon: Pension scam cold-callers - we've got your number Keeley Paddon: Pension scam cold-callers - we've got your number

19 Jan 2017

For far too long, says Keeley Paddon, cold-callers and pension scams have been a blight on the pensions sector and it is good to see the authorities finally appear to be grasping the nettle

In December 2016, HM Treasury and the Department for Work and Pensions (DWP) launched a joint consultation to consider the options for preventing the pension scams that have long been the bane of the pensions industry.

The consultation - which runs until 13 February 2017 - proposes a multi-pronged approach to tackle the threat of pension scams, including:

* An outright ban on ‘cold calling' in respect of pensions, to be enshrined in primary legislation;
* Restricting the circumstances in which an individual will have a statutory right to transfer their pension benefits; and

* Making it harder for fraudsters to set up small pension schemes likely to be used for pension scam purposes. Cold-calling is the most common method used to instigate a pension scam. I have personally received a number of unsolicited calls from companies claiming they have been "instructed by the Government to offer people a free pensions review", or saying there is a loophole in the pensions legislation that means people can access their pension funds from any age.

A blanket ban on pension cold-calls would provide a very clear message to the public - no legitimate organisation will ever cold-call you in respect of pensions and so Any Such Call Will Be A Scam.

UK based organisations that breach this ban would be liable to sanctions imposed by the Information Commissioners Office, including a fine of up to £500,000.

Statutory Right To Transfer

Under the current rules, many pension providers find themselves in an almost impossible situation - where they suspect an individual may be transferring to a pension scam but are unable to prevent the transfer because the individual has a statutory right to make this decision. 

Undoubtedly, the real show-stopper in the consultation is the proposal to restrict the circumstances in which an individual has a statutory right to transfer. According to the consultation, a statutory right would only exist where the receiving scheme:

* Is a personal pension operated by a Financial Conduct Authority-regulated organisation; or

* Is an occupational pension scheme and the individual can prove a genuine employment link with a sponsoring employer; or
* Is an occupational pension scheme established as an authorised master trust.

It is suggested demonstrating there is a genuine employment link would involve the individual providing evidence of regular earnings from an employer, and confirmation = the employer has agreed to participate in the receiving scheme.

The consultation recognises there are several challenges here - for example, where an individual is seeking to consolidate their pensions by transferring other benefits into a legitimate occupational scheme in which they hold deferred benefits, so there is no current employment link. It does, therefore, also suggest an alternative approach to this area.

Establishing Small Pension Schemes

Many pension scam vehicles involve the use of small self-administered schemes (SSASs), which offer exotic investment options and promise unrealistic returns.

There has been a trend towards individuals setting up what might be called a shell company - one that never actually intends to trade - simply to allow for the creation of a one-person SSAS that has certain hallmarks of being a pension scam vehicle.

The consultation proposes that only companies that are actively trading will be able to establish a registered pension scheme. This would prevent the use of a dormant or shell company as a sponsoring employer for the purpose of registering a pension scheme.

This consultation is most welcome. For far too long, pension scams have been a scourge on the pensions industry and we are pleased to see the Treasury and the DWP finally appear to be grasping this particular nettle.

Advisers may recall the case of Donna-Marie Hughes v Royal London Mutual Insurance Society, which involved the individual possibly being cold-called, leading to a request for a transfer to a one-person SSAS, established by a dormant employer from which the member had received no earnings.  If the proposals in the consultation do go ahead, this case would have ‘failed' all three of the new requirements.

One area that does not yet appear to be addressed, however, is the use of QROPS as pension scam vehicles.  It remains to be seen whether or not the recently proposed changes to QROPS will be of any help here, or whether the current proposals to prevent pension scams will be expanded to address this issue.

Keeley Paddon is head of pension technical at SimplyBiz Group

Keeley Paddon: Pension scam cold-callers - we"ve got your number Current consultation ends on 13 February For far too long, says Keeley Paddon, cold-callers and pension scams have been a scourge on the pensions sector and it is good to see the authorities finally appear to be grasping this nettle In December 2016, HM Treasury and the Department for Work and Pensions (DWP) launched a joint consultation to consider the options for preventing the pension scams that have long been the bane of the pensions industry.

The consultation - which runs until 13 February 2017 - proposes a multi-pronged approach to tackle the threat of pension scams, including: * An outright ban on "cold calling" in respect of pensions, to be enshrined in primary legislation; * Restricting the circumstances in which an individual will have a statutory right to transfer their pension benefits; and * Making it harder for fraudsters to set up small pension schemes likely to be used for pension scam purposes. Cold-calling is the most common method used to instigate a pension scam. I have personally received a number of unsolicited calls from companies claiming they have been "instructed by the Government to offer people a free pensions review", or saying there is a loophole in the pensions legislation that means people can access their pension funds from any age.

A blanket ban on pension cold-calls would provide a very clear message to the public - no legitimate organisation will ever cold-call you in respect of pensions and so Any Such Call Will Be A Scam. UK based organisations that breach this ban would be liable to sanctions imposed by the Information Commissioners Office, including a fine of up to £500,000. Statutory right to transfer Under the current rules, many pension providers find themselves in an almost impossible situation - where they suspect an individual may be transferring to a pension scam but are unable to prevent the transfer because the individual has a statutory right to make this decision. Undoubtedly, the real show-stopper in the consultation is the proposal to restrict the circumstances in which an individual has a statutory right to transfer.

According to the consultation, a statutory right would only exist where the receiving scheme: * Is a personal pension operated by a Financial Conduct Authority-regulated organisation; or * Is an occupational pension scheme and the individual can prove a genuine employment link with a sponsoring employer; or * Is an occupational pension scheme established as an authorised master trust. It is suggested demonstrating there is a genuine employment link would involve the individual providing evidence of regular earnings from an employer, and confirmation = the employer has agreed to participate in the receiving scheme. The consultation recognises there are several challenges here - for example, where an individual is seeking to consolidate their pensions by transferring other benefits into a legitimate occupational scheme in which they hold deferred benefits, so there is no current employment link. It does, therefore, also suggest an alternative approach to this area.

Establishing small pension schemes Many pension scam vehicles involve the use of small self-administered schemes (SSASs), which offer exotic investment options and promise unrealistic returns. There has been a trend towards individuals setting up what might be called a shell company - one that never actually intends to trade - simply to allow for the creation of a one-person SSAS that has certain hallmarks of being a pension scam vehicle. The consultation proposes that only companies that are actively trading will be able to establish a registered pension scheme. This would prevent the use of a dormant or shell company as a sponsoring employer for the purpose of registering a pension scheme. This consultation is most welcome. For far too long, pension scams have been a scourge on the pensions industry and we are pleased to see the Treasury and the DWP finally appear to be grasping this particular nettle. Advisers may recall the case of Donna-Marie Hughes v Royal London Mutual Insurance Society, which involved the individual possibly being cold-called, leading to a request for a transfer to a one-person SSAS, established by a dormant employer from which the member had received no earnings. If the proposals in the consultation do go ahead, this case would have "failed" all three of the new requirements. One area that does not yet appear to be addressed, however, is the use of QROPS as pension scam vehicles. It remains to be seen whether or not the recently proposed changes to QROPS will be of any help here, or whether the current proposals to prevent pension scams will be expanded to address this issue.

Keeley Paddon is head of pension technical at SimplyBiz Group


Testimonials

"Still as good as when we first joined SimplyBiz, staff are always approachable, knowledgeable and friendly. Uncle Ken Davy is still a God in my opinion!"

Wayne Bedford
Brant Financial

Read More

Latest News

GDPR – the dawn of a new era in data security and usage

January 09, 2018

As you are no doubt aware, the General Data Protection Regulation (GDPR) was first introduced in April 2016 by the Information Commissioner’s Office (ICO) and the new regulation must be adopted by every UK firm that handles personal data by the 25th of May 2018.

Read more >

View from the top...

January 09, 2018

With nearly five decades of experience in the financial services sector, SimplyBiz Group Chairman, Ken Davy, provides a unique perspective on the advisory landscape. In this edition of Adviser Today, Ken gives us his view on the FCA’s recent Paper on the ageing population, and why he feels this piece of research is so important. 

Read more >

Davy warns of 'year of regulation'

January 04, 2018

SimplyBiz founder and chairman Ken Davy has warned 2018 will be the year when advisers are hit by more rules and regulations than ever before.

Read more >

A New Year message from Ken Davy

January 03, 2018

SimplyBiz Group Chairman, Ken Davy provides an update on the year ahead, regulation, our services, and his campaign to reform the FSCS funding system. 

Read more >