The introduction of the pension freedoms a few years ago gave savers far more say over how they access their pension funds.
However, it has also acted as a green light for scammers, making it far easier for them to con people into handing over their pension pots.
According to the FCA, more than £2 million was lost to pension scammers in the first five months of 2021 alone, though this is likely just the tip of the iceberg.
In fact, the Pension Scams Industry Group last year argued that as much as £10 billion had been lost to fraudsters since 2015, with around 5% of all pension transfers showing signs of being subject to a scam.
Thankfully, action is now being taken to tighten up pension transfers, and make it harder for scammers to talk people out of their savings.
Yet there have been suggestions that these tougher rules actually go too far, and are preventing savers from carrying out perfectly legitimate transfers.
Is this transfer acceptable?
Back in November, new rules were introduced covering potentially suspicious pension transfers.
Let’s say that I want to transfer my pension out of my current scheme, and into a new one. The trustees of my current pension scheme will need to check my proposed transfer, to see if it meets certain criteria that could suggest that I am being scammed.
Some conditions mean that the trustees must raise a ‘red flag’, meaning the transfer is immediately halted. These include:
- The saver requesting to transfer after ‘unsolicited contact’ (such as a cold call);
- The saver being offer an incentive to make the transfer;
- The saver being pressured into making the transfer.
However, other circumstances mean an ‘amber flag’ is raised. These conditions include:
- High risk or unregulated investments are included in the receiving scheme;
- Unclear or high fees being charged by the receiving scheme;
- Structure of investments in the receiving scheme is unclear, complex or unorthodox;
- Overseas investments are included in the receiving scheme;
- There has been a sharp or unusual rise in the volume of requests to transfer to a particular scheme or particular firm.
In the event of an amber flag, the transfer can only go through once the saver has completed a pension scam guidance session with the Money and Pensions Service (MaPS).
Raising flags
Data from a new Freedom of Information request obtained by wealth management firm Quilter suggests that too often legitimate transfers are being halted.
The figures show that there has been a huge increase in the number of MaPS scam guidance sessions taking place, from the 20 carried out in December to the 505 sessions in March.
And in many cases ‒ almost 40% ‒ the ‘amber flag’ being raised against a potential transfer was due to the pension saver looking to move their cash into overseas investments. That works out at around 134 pension transfers being put on hold.
Should this actually be happening, though?
Jon Greer, head of retirement policy at Quilter, noted that many UK registered pension schemes offer overseas investment, and argued that this alone should not be cause for a possible transfer to be halted.
He added: “There is a clear divergence between policy intention and the practical application of the law.”
What are we trying to achieve?
It should go without saying that having some protections and provisions in place to make it tougher for scammers to talk savers into handing over their pension cash is worthwhile.
We have seen far too many people lose their life savings since the introduction of the pension freedoms, so it’s really important that proper ‒ and effective ‒ barriers are put up which can guard against that happening.
There is a balance to be found though. Yes, an awful lot of scams involve overseas investments, but the international nature of an investment should not mean it automatically arouses suspicion.
We need trustees to be a little more discerning in how and when they raise those amber flags, otherwise we will end up with an awful lot of pointless and unnecessary scam guidance sessions taking place.
Those sessions have value, but only if they are actually required. As the rules are currently being interpreted, it’s far too easy for a perfectly legitimate transfer to be halted. We need those rules to be revised to be more specific in identifying the types of transfer which require intervention, and those that don’t.