In February, the Department for Work and Pensions published an impact assessment of its proposed new rules to help tackle pensions scams.
The new rules centre around amending existing statutory rights that enable pension holders to transfer their pension pots to new schemes.
The idea is that trustees or scheme managers can ensure against transferring pensions to scam schemes, and the new rules will give them more power to decline requests if they suspect that the scheme in question is fraudulent.
The rules will also require the trustees to check that any receiving scheme is regulated by the Financial Conduct Authority, has an active employment link with the individual, or is an authorised master trust.
- Rules have been published around pension scams.
- New legislation cannot come soon enough.
- Pension scammers often come in and target people with large pots.
The proposed rules apply to both defined contribution and defined benefit pension schemes, and cover transfers to qualifying recognised overseas pension schemes, which are overseas self-invested personal pensions.
How much will the rules cost?
The new rules to prevent scams are expected to cost the industry, and employers, around £1m in the first year.
This figure comprises £463,000 in familiarisation costs and £674,000 in administration costs (£435,000 to providers and £239,000 to employers).
According to the DWP, the proposed new regulations will affect 100,000 DB pensions transfers and 60,000 transfers from DC trusts.
The scale of the problem
The new legislation cannot come soon enough and we would welcome the new rules with open arms.
In fact, any legislation brought in to curb scammer activity can only be a positive step towards ending pensions fraud altogether.
Over the past decade, pensions fraud has reached unprecedented levels and has left thousands of Britons out of pocket in their retirement.
In 2017 alone, Action Fraud received reports from 253 people who had collectively lost £23m to pension scammers. This equates to an average loss of £91,000 per person.
And the FCA’s Financial Lives report suggested that 107,000 people aged between 55 and 64 could potentially have been victims of pension scams in the same year.
Pensions scammers often swoop in and target older people who have built up large amounts of money over the years, convincing them to move secure pension pots into fraudulent or extremely risky schemes.
This leaves hard-working people with little or no chance to rebuild their pensions pots, causing them untold stress and financial hardship in their twilight years.
Although the new rules may cost the industry £1m (collectively) in the first year, this is a drop in the ocean compared to the amount of money being taken from hard-working people by unscrupulous advisers and fraudsters.
More due diligence required
The proposed new rules mean that more due diligence will be required from the pensions scheme managers or trustees, meaning that there should be a strong safeguard or backstop in place to prevent transfers to fraudulent schemes.
The new rules will also put the responsibility firmly in the hands of the experts, and not the pension holder.