New limits to pension transfers, which are part of the planned rules on pension scams announced by the government this week, are expected to increase the burden on scheme trustees.
Compliance monitoring will also be complicated, according to experts, as regulators are only expected to intervene after the scam has happened.
According to Malcolm Mclean, senior consultant at actuarial firm Barnett Waddingham, “there will be extra work involved for trustees for example in having to check the credentials of a receiving scheme”.
However, Mr Mclean does not believe “it will be necessary to check every transfer in such detail where the existence and general information about the scheme is more widely available and known to the trustees anyway”.
According to the government’s consultation response on pension scams, the statutory right to transfer will be limited to certain scenarios.
These are transfers in to personal pension schemes operated by firms authorised by the Financial Conduct Authority (FCA), transfers in to authorised master trust schemes, and transfers where a genuine employment link to the receiving occupational pension scheme could be evidenced.
Nita Tinn, director of Independent Trustee Services (ITS), said “there will be an initial difficulty in setting up the right processes in the system”.
“But once you have a process set-up it should be reasonably easy to obtain information on legitimacy of employment, for example. There are various checks you can require the member to do, such as providing evidence, payslips, etc.,” she said.
But Robert Branagh, president of the Pensions Management Institute, told FTAdviser he believes the new rules will be easy to implement.
He said: “Trustees put an awful lot of time and effort in looking into requests for transfers and whether or not there is any potential fraud, malpractice or anything wrong with the transfer.
“There is a lot of work that is done currently, so I am not sure there will be a huge amount of extra effort required.”
According to Mr Branagh, most trustees will welcome the new rules and will use them “to reinforce the practices and processes that they currently have”.
According to the pension scams consultation response, the proposals are expected to be finalised this year.
“The government intends to work closely with industry, consumer groups and other stakeholders […] in particular to determine the most effective way to implement the employment link,” the government has stated.
The new protection measures, in which a cold calling ban was also announced, include a tightening of HMRC rules to stop scammers opening fraudulent pension schemes.
The government wants to ensure that only active companies, which produce regular, up-to-date accounts, can register pension schemes.
To Ms Tinn, this is one of the key aspects of the new rules.
“You cannot set up an occupational pension scheme for people that do not work for you or never worked for you, or if you do not have anyone working for you,” she said.
“This, for me, is such a blatant loophole in the current system, it is crazy,” she argued.
Ms Tinn said that she often has “difficulties in establishing if these scheme are legitimate or not, because they can register, and not all of them are in the HMRC list of suspect schemes”.
“It is often difficult to respond to calls [of people] that insistently want to transfer, we believe that it may be a scam but we cannot be sure, and it is really quite hard,” she added.
The government intends to introduce legislation in a Finance Bill later in 2017 aimed at ensuring that only active companies can register a pension scheme. It will also introduce additional changes to the scheme registration process.
Mr Branagh said it will be difficult to increase the supervision to prevent these scams.
“I think monitoring is going to be a little tricky, because people like HMRC or the regulator only find out about these scams when things go to court or get prosecuted,” he said.
However, the number of scams is expected to come down, he said.
“Scammers do not have too many hurdles to clear to actually make the transfer go ahead, I think some of these proposals will make much more difficult to do that,” he noted.
With an estimated £43m lost to scams since 2014, with almost £5m lost between Jan and May this year, all three experts are imperative in saying that these new rules need to be discussed in Parliament as soon as possible.
“We need the ban on cold calling, the measures to make it harder for the fraudsters to open pension schemes and the limits on the statutory right to transfer to some occupational pension schemes to all be brought in ideally during 2017 not allowed to drift on into 2018,” Mr Mclean said.
Steve Carlson, chartered financial planner at Cardiff-based Carlson Wealth Management, does not believe in the success of the new government measures.
He said: “We need a much simpler, stronger and consistent message being sent to all pension savers that cold calling is banned and transferring to a non FCA regulated scheme means they could lose all their money.”
“If that message was sent out by every pension provider on a one page letter written in bold, both annually and when a transfer is requested, then that could reduce pension scams more than introducing new rules that pension scammers will inevitably find a way around,” he concluded.
maria.espadinha@ft.com
