The industry has welcomed the government's planned crackdown on pension scams, with some calls for interim measures to stop fraudsters immediately.
In a consultation published yesterday (5 December), the government outlined plans 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.
Yesterday's consultation also looks 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.
Kate Smith, head of pensions at Aegon said a heightened awareness among consumers that people should not be contacting them out of the blue about their pension is the most valuable aspect of the ban on cold callers.
She said while government proposals are welcome, to be fully effective they need to include banning texts and emails as well.
Ms Smith said: "Scams are constantly evolving and fraudsters go to great lengths to trick people, even coaching them to work around pension company safeguards, so what’s needed is hard line measures to really crack down on future pension scams.
"New legislation will mean firms can only call consumers if they have an existing client relationship, where the customer envisages receiving calls. This is good news as it’ll allow providers and advisers to continue to offer much needed support."
Ms Smith added the legislation should avoid unnecessary barriers which stop legitimate advisers helping consumers with their pensions.
David Brooks, technical director at Broadstone said a review of the definition of a statutory transfer is a "good idea", and emphasised that regulators are the industry's policemen, not pension trustees.
"Anything that does not bring trustees into a collision course with members or puts trustees at the front line as policemen is the best course of action," he said.
"The worst case scenario would be to leave too much down to trustee or pension manager discretion. The government should ensure that the criteria for a statutory transfer should be as clearly defined and verifiable as possible to ensure a smooth transfer process."
Mr Brooks added there is a lot of work for the regulators to do to ensure the practices of well-known scammers and arrangements set up using sham companies is stamped upon quickly.
Tom Selby, senior analyst at AJ Bell, said on first read, the interventions announced by the government to tackle pension scams look to have real teeth.
He said the government also appears open to taking further action to deter pensions fraud in the long-term.
“Savers could, for example, be given early access to their tax-free cash where they can demonstrate financial hardship. People are often lured in by scammers when they are in financial distress, so this safety valve could provide a valuable extra option for those who are struggling to make ends meet."
He added a list of permitted investments for Sipps could also be reintroduced, which would make it harder for pension fraudsters to succeed with scams based around 'too good to be true' investments which are not on the list.
For Ben Fairhead, pensions expert at law firm Pinsent Masons, the proposal to introduce a requirement of a genuine employment link to a receiving occupational pension scheme would make it much more difficult for scammers to exert pressure on pensions trustees to transfer funds into suspicious schemes.
"The devil will be in the detail of working out what a genuine employment link and regular earnings look like – but any change in this area is likely to be an improvement on the current legal position.
He said recognising and tackling the issue of dormant companies that are all too often used as vehicles for pension scams is similarly encouraging.
“The one fly in the ointment might be the window of opportunity that remains now for scammers before any change to the law is brought into effect – which could be many months away.
"It would be sensible for the government to think about some interim measures to prevent the sort of upsurge of activity that might otherwise result whilst the law remains in its current unsatisfactory state.”
ruth.gillbe@ft.com
