The Government has launched a consultation proposing a series of restrictions on pension transfers in a bid to halt the rise in pension fraud since the launch of pension freedoms in 2015.
Following on from the announcement in the recent Autumn Statement that they would be cracking down on fraudsters, HM Treasury and the DWP published a joint consultation on 5 December which proposes the following approach:
- Imposing a ban on pensions “cold-calling”.
- Placing restrictions on a member’s statutory right to transfer their pension benefits.
- Making it harder to set up potentially fraudulent small pension schemes (often a destination for pension scams).
Ban on cold-calling
It is estimated that there are some 250 million cold calls each year, equivalent to eight potential fraud attempts every second. A blanket ban on cold-calling will send out a clear message both to the public, that no legitimate organisation will cold-call about pensions, and to the fraudsters, as potential fines of up to £500,000 could be imposed by the Information Commissioner’s Office on any UK organisation breaching this ban. The government has outlined the sorts of phone conversations that will fall foul of the ban which include: offers of a “free pensions review”, inducements to release pension funds early and promotions of retirement income products, such as drawdown and annuity purchase.
Restrictions on transfers
It is generally difficult to block a transfer even where it is suspected that an individual may be transferring to a fraudulent scheme, because the individual has a statutory right to transfer. Indeed the government has said in this consultation: “The government is regularly informed by firms and schemes that they are frustrated and concerned because they feel current legislation gives them little scope to refuse a transfer to a scheme that displays the characteristics of a scam, despite their legitimate concerns as to the safety of members’ savings.”
To avoid the blocking of legitimate transfers, the government has said that clear criteria are now needed on when a transfer could be blocked in future. The consultation proposes that a statutory transfer would only exist where the receiving scheme:
- is a Personal Pension operated by a FCA authorised firm or entity;
- is an occupational pension scheme and the individual can prove a genuine employment link with evidence of regular earnings and confirmation that the sponsoring employer has agreed to participate in the receiving scheme;
- is an occupational pension scheme established as an authorised Master Trust.
Setting up fraudulent schemes
The government also wants to make it harder to open fraudulent pension schemes in the first place. There has been a trend recently towards the setting up of small tax-registered schemes that require no registration with the Pensions Regulator and which often use a dormant company as the sponsoring employer. The consultation proposes that only companies that are actively trading will be able to establish a registered pension scheme which the government hopes will prevent the use of these dormant or shell companies as a sponsoring employer for the purpose of registering a pension scheme.
The consultation is open for 10 weeks and closes on 13 February 2017.