The government is investigating whether to limit the right of individuals to transfer their pension to some occupational schemes, as well as a ban on pension cold calling, to stop fraudsters.
In November this year, the government confirmed it will ban pensions cold calling, after a parliamentary petition launched by a financial adviser put the issue into the spotlight two months before.
Today's (5 November) consultation is also looking at making it harder for fraudsters to open small pension schemes that people are then encouraged to transfer into, with the money then siphoned off.
According to the government, limiting the right to transfer to some occupational pension schemes will address one of the key routes used to access people's pension savings through a fraudulent pension scheme.
Many stakeholders have asked for the law to be changed, so that firms and trustees can block pension transfers when there are concerns over the legitimacy of the receiving vehicle.
This could be where the individual does not receive any income from the sponsoring employer of what claims to be the receiving occupational pension scheme, for example.
The government said in order to ensure that firms are not able to block legitimate transfers it is consulting on objective criteria regarding the grounds on which transfers could be blocked.
It added it believes it is right that members of pension schemes should continue to have the right to transfer, but that it may be necessary to limit that right in certain circumstances in order to protect individuals’ savings.
A statutory right to a transfer would exist only where the receiving scheme is a personal pension scheme operated by an FCA authorised firm or entity under this proposal.
Additionally, it would exist where a genuine employment link to the receiving or occupational pension scheme could be demonstrated, or the receiving occupational pension scheme was an authorised master trust.
It will still be possible to transfer from an occupational pension scheme or personal pension scheme to a different occupational pension or personal pension scheme.
According to the government, a cold calling ban will cut off a key source of pension scams, whilst significantly simplifying the anti-fraud message to the general public, that they will never be cold called about their pension.
The consultation document noted a range of stakeholders have publicly called for this, and a recent parliamentary petition supporting the banning of cold-calling in relation to pension investments has received widespread media coverage.
Making it harder to set up and run fraudulent pension schemes will act upon another key aspect of pension fraud, according to the government.
Currently, there are about 800,000 pension schemes in the UK, the vast majority of which are small single member schemes.
Fraudsters have identified the opportunity to set up small tax-registered pension schemes that require no registration with The Pension Regulator, and are often using a dormant company as the sponsoring employer for the scheme.
Richard Ross, a chartered financial planner with Norfolk-based Chadwicks, said: "I remain unconvinced that a cold-calling ban will deter fraudsters – are they really going to be dissuaded from stealing someone’s pension by the threat of a fairly modest fine for making a phone call?.
"However, making it more difficult to set up a scheme in the first place and then giving bona fide pension scheme trustees more powers to block transfers seem like eminently sensible suggestions. What is needed is a second line of defence that is operated by people who actually understand pensions and are more likely to be able to spot a scam.
"If, as an unintended consequence, this also means there will be fewer financially precarious Master Trust arrangements so much the better."
ruth.gillbe@ft.com
