On 24 June 2021, we hosted a “Pensions transfers and scams – what you need to know in a fast changing environment” webinar. The event considered recent developments on this key issue in the pensions field such as the upcoming legislative changes to the statutory right to transfer, recent case law and real life examples, and regulatory and industry responses.

The session was delivered by Suzanne Padmore and Amy Khodabandehloo from our Pensions Disputes team, Sue Young from in our Pensions team and Ralph Lovesy in our Financial Services regulatory team.

Key take-home points from the webinar:

Pension scam risk continues to rise but action is being taken to prevent them

There is a real concern that scammers are taking advantage of members’ vulnerabilities particularly in light of the COVID 19 pandemic. But a lot is being done to combat pension scams, including:

  • The Pensions Regulator has identified tackling pensions scams as a strategic priority in its Corporate Plan for 2021-24 
  • The Pensions Regulator trustee toolkit now includes a new scam model and industry organisations are encouraged to sign up to its pledge to combat pension scams
  • The Department for Work and Pensions has consulted on draft Regulations on the conditions for transfers
  • The Fraud Compensation Fund operated by the Pension Protection Fund has been deemed available to certain victims of occupational pension liberation scams
  • The FCA has recently closed a consultation on preventing claims management phoenixing and is consulting on strengthening rules in relation to high-risk investments. 
  • It has also implemented a range of initiatives to combat pension scams including same day monitoring to capture suspicious advertising and promotion restrictions on social media

Unregulated activity is a particular concern

  • The FCA currently has 50 open investigations into suspected scams that relate to unauthorised activity
  • The concern surrounding unregulated introducers in particular is demonstrated in the recent judgment in Adams v Options UK Personal Pensions LLP  
  • The Court of Appeal’s decision overturned the High Court’s ruling and permitted Mr Adams to unwind his investment in the SIPP and obtain damages under section 27 of FSMA on the basis that Options UK Personal Pensions LLP (formerly Carey Pensions UK LLP) had transferred Adams’s life policy to a SIPP as a consequence of an unregulated introducer’s recommendation. 
  • This decision places a greater onus on regulated firms to carefully analyse the processes carried out by unregulated introducers, to be sure that the introductions do not fall within the scope of section 27 of FSMA

More is being done to empower trustees to refuse suspicious transfers

  • Trustees currently have limited scope to take action where they have strong concerns that a member might be scammed following a transfer out of a scheme, as confirmed in Hughes v Royal London case, and the Government recognises this
  • The Government does not wish to create unnecessary barriers to transfers that pose a minimal or low risk of a scam, but through the new Regulations (due to come into force this autumn) it plans to give Trustees a clear route to asking further questions to determine the presence of a scam
  • Trustees will have the ability to prevent transfers where there are real “red flags” indicating a serious risk that the member will fall victim to a pension scam. Examples of “red flags” include if a member has been contacted on an unsolicited basis or if the member has been offered an incentive to transfer out. They will also have the power to take action if “amber flags” are present, by requiring the member to provide further information and take guidance on the transfer from the Money and Pensions Service before it can proceed

A lot of transfer requests will be legitimate – but don’t be afraid to ask questions

  • Although scams pose a very real risk in the industry, it is important to remember that most transfers are legitimate and can proceed. We have seen this echoed by the Pensions Regulator in practice, through its expectation that a transfer will go ahead if the necessary due diligence is met
  • However, Trustees should not be afraid to question a transfer if they have suspicions, and in the case of insistent transferees, Trustees should document all information considered and decisions made and communicate clearly at all stages with the member

Although remedies are available - prevention is better than cure! 

  • Although there are a wide variety of channels for recovery available to members who fall victim to pension scams, for example the Pension or Financial Ombudsman services, it is important to go through the complaints channels first 
  • For example if the claim is against an IFA or a SIPP, such firms should have a robust complaints process in place and be equipped to correctly calculate the compensation due to a customer
  • The FSCS may be available where a regulated firm fails and is unable to pay compensation due

However, prevention is undoubtedly better than cure, especially if that cure may be limited by statutory caps in place on awards or compensation available. 

We are encouraged by the level of activity in the industry to prevent scams and are keen to support scheme Trustees and regulated firms to play their part.