Time to level out the playing field on scams

But increasingly, unjust outcomes are also filtering through to compensation payments, with good advisers footing the bill and paying the price.

There is no dispute that victims of pension fraud are ultimately the biggest losers, with too many individuals deprived of their entire life savings in the blink of an eye.

Our investigation, following months of interviews, shows some of the true costs of this fraud.

Reputable advisers face growing bills to cover compensation payments on claims

But consumers are not the only ones to suffer at the hands of fraudsters.

Reputable advisers face growing bills to cover compensation payments on claims which end up at the Financial Services Compensation Scheme, with the industry having to pay out £213m this year alone to fund the fallout.

Advisers who have had no claims against them in the past are paying the same levels as those who have, and we must again ask the Financial Conduct Authority why good, honest advisers, who are fair and not misleading with customers, should pay for bad actors' behaviour.

Now is as good a time as any to even out the playing field, especially as pension scams seem here to stay, and scammers get more inventive with their methods as the coronavirus crisis deepens.

The FCA has already made a moves of its own, by forcing pension providers to foot a quarter of the bill. But more radical reform is needed.

For example, pension schemes themselves could also pay a fee towards combating scams.

Pension scheme trustees are obliged to check whether an adviser has the correct permissions before allowing a defined benefit transfer to go ahead, but there have been unscrupulous advisers caught taking advantage of savers in the transfer market.

Given that they are involved in conducting a level of due diligence, schemes should foot part of the bill to pay out when these dishonest advisers strike.

This could work by siphoning off a percentage of the general levy, which is paid by occupational and personal pension schemes, to fund scam prevention services or to put towards the FSCS levy.

The government is currently looking to review the general levy, which means this idea could be both feasible and implemented on a relatively quick timescale.

Another way to lower advisers’ bills could be for the government to collect its own levy, helping fund educational campaigns on stopping scams, or for there to be a product-based levy, which would see clients and other consumers contributing to the FSCS, rather than advisers.

The Personal Finance Society’s chief executive, Keith Richards, pushed for this back in 2018 when he called for a savings and investment monetary protection and education (SIMPEL) levy, collected centrally by government.

This way the levy would be attached to the transaction and sale of product, which would be added to its price and paid by the consumer.

Advisers would also contribute to the fund, which would pool the risk and in turn limit the current need for professional indemnity insurance.

On top of this, given the majority of the claims going through the FSCS relate to self-invested personal pension scams, the FCA could also look to increase Sipp providers' share of the levy.

This should almost certainly be the case for providers who have knowingly accepted investments that were unregulated and not suitable for the client, and have resulted in the saver losing the majority of their savings in what turns out to be an illiquid asset.

Across the industry, there is much thought to be given to what the best reform might be. But time is of the essence as scammers get increasingly innovative and come up with new ideas on how to steal savers' lifetime funds.

It is time to make the system fairer. If this means ripping up the current rulebook and starting again, so be it.

Amy Austin is a senior reporter at FTAdviser and Financial Adviser