Pension regulators should be given the power to override people's statutory right to transfer should a suspected scam be reported to them, a think tank has said.
A report by provider The People’s Pension and think tank the Police Foundation, published today (September 7), pointed out that although current rules allow providers to flag potential fraudulent activity to savers, neither they nor the Pensions Regulator are able to stop transfers in their tracks.
They are calling for new powers for schemes to stop any transfers where scammers are suspected to be involved.
This comes as the report found the majority of pension scheme members (60 per cent) choose to go ahead with a transfer even after being made aware of scam risks.
The report found out of 121 pension companies, three quarters highlighted savers' rights to transfer as a major issue when trying to stop scams from occurring.
In addition, more than half said savers who insisted on making a transfer were a major challenge with some saying insistent clients had been “primed or groomed by scammers to not engage or listen to advice from ceding companies”.
Under current rules, if a provider refuses to carry out a transfer they could be at risk of legal action.
In 2016 Royal London was successfully taken to court by its scheme member after it identified and blocked a suspicious transfer request.
The People’s Pension and Police Foundation proposed that individuals who disagree with the regulators’ or providers’ decision to stop the transfer be given a right of appeal to the Pensions Ombudsman.
Phil Brown, director of policy at The People’s Pension, said: “Currently, pension providers can flag a potential scam to a customer, but we can only stand by and watch if the individual chooses to proceed with a risky transfer that could result in them losing all their savings.
“We’re calling on the government to provide pension providers and regulators with the powers to stop risky transfers and ensure victims of fraud aren’t hit with having to pay tax penalties on their lost savings.”
The report also calls on schemes and providers to perform enhanced due diligence checks on transfers and report any suspected scams to the regulator.
In addition, it asks HM Revenue and Customs to ensure victims of pension fraud are not liable for tax penalties.
According to the report, victims of fraud are often put off engaging with the police due to the prospect of a tax penalty they cannot afford.
Even when they do approach the police to report the scam, their HMRC status as tax avoiders erodes their credibility as witnesses for the prosecution of the scammers, it stated.
Rick Muir, director of the Police Foundation, said: “We can’t arrest our way out of pension and investment fraud and that’s why efforts at the front end to prevent scams are so important.