The Pensions Regulator (TPR) estimates that over 100,000 transfers out of defined benefit schemes took place in 2018, equating roughly to £34 billion.
This follows the pensions freedoms introduced by the 2014 Budget. However, there are risks that members are being poorly advised or that members are transferring their benefits into scam vehicles.
In light of the above, several measures have been announced to protect members and assist those responsible for running pension schemes.
Regulators warn the public of pension scam tactics
A campaign to tackle pension scams and raise awareness has been launched by the Financial Conduct Authority (FCA) and TPR. The campaign alerts the public to the most common tactics used by fraudsters. Statistics show that victims lose an average £91k each and those in the age group 45-65 are most affected. However, it is also believed that only a minority of scams are reported. The FCA and TPR are urging anyone who believes they may have been targeted to come forward.
FCA and TPR publish joint pensions strategy
They will undertake a strategic review of the entire consumer pensions journey, taking an in-depth look at the tools needed to enable members to make considered decisions about their benefits. They will also use their powers to drive value for money, including the setting and enforcement of clear standards and principles.
Having already launched a joint campaign to combat the risk of pension savers being scammed, the two regulators are already well equipped to work collaboratively.
Monitor transfer activity
TPR has asked trustees to keep records of transfer activity, including details of advisers and receiving schemes and report any suspicious activity to them, the FCA and/or Action Fraud. Trustees should have processes in place to check whether transfers are legitimate and, if in doubt, alert the member so additional due diligence can be carried out.
Trustees should review how they communicate the transfer option to members as good processes and clear communication will protect members from poor transfer decisions.
TPR urges schemes to cut transfer values
Some schemes that experienced high volumes of transfer activity have received a letter from TPR. The letter urges them to review the assumptions underlying the calculations, in circumstances where the funding level is insufficient, and the strength of the employer covenant is weak, to protect remaining members remaining.
Our advice to trustees is to monitor activity and obtain regular advice from their Scheme Actuary on appropriate assumptions and the funding position to determine whether a reduction to transfer values should be put in place. ●
Joanne Eynon, Partner