Pension providers gain new powers to halt suspicious transfers

New rules aimed at stopping the rising number of pension transfer scams - in which people can lose their entire life savings - are now in force.

Between 2017 and 2020, the Financial Conduct Authority (FCA) and the Pension Regulator logged more than £30 million lost to pension scammers. And between January and May this year alone, £2.2 million worth of pension scam losses were reported to Action Fraud.

However, from now on, if a pension trustee or scheme manager spots obvious signs of fraud or scamming methods they will be able to automatically block a member's request to transfer their pension pot to another scheme by giving it a 'red flag'.

Is Wards Solicitors seeing evidence of pension scams?

Yes, here at Wards Solicitors, we have seen cases where people have been persuaded to transfer money out of safe occupational pension schemes (sometimes described as "frozen" because they relate to a previous employment) into a personal pension where the saver carries the risk.

The problem cases arise when there's a transfer out into unregulated or lightly-regulated schemes such as a self-invested personal pension (SIPP) or a small self-administered scheme (SSAS) with the ultimate objective of 'investing' the money in fraudulent and/or high risk investment schemes such as teak, truffle farming, hotel rooms, parking spaces or storage.

Sometimes the yields on these schemes are touted as 15% or more to attract custom, other times people are told that they can access these 'frozen' pension funds without being informed of the punitive tax charges which usually follow.

Either way, the pension owner can be left with nothing, or next to nothing, and sometimes in debt to boot.

How will the new pension transfer rules work?

Growing problems with pension fraud are behind the introduction of the new scheme.

In the past, pension schemes could only warn a customer if they spotted signs of a suspicious transfer request.

From now on though, they can stop a transfer request by giving it a 'red flag' - when a fraud or scam can be clearly recognised - or an 'amber flag' which means possible signs of a scam have been detected. In this case, the pension saver must take scams advice from the Money and Pensions Service (MaPS) before transferring a pension.

• Red flag scenarios include when a pension saver has been pressurised, or feels pressurised, into making the transfer or when they report receiving financial advice from a firm without the relevant regulatory permissions.
• Orange flag scenarios include when the fees being charged by the receiving scheme are unclear or high or when the proposed investment structures are complicated or unusual.

More details of how the scheme works can be found by clicking here.

How will the new pension rules protect savers?

The Pension Scams Industry Group estimates that 5% of all transfer requests give trustees and scheme managers cause for concern.

The new regulations have been welcomed as empowering Trustees to act as the first line of defence against scammers, enabling them to engage in enhanced due diligence measures and issue warnings of high-risk transfers. This can also include reporting suspected scams to Action Fraud.

It is anticipated that most legitimate transfers will proceed without delay. The purpose of the change is to allow trustees to decline a transfer when it bears the hallmarks of a scam.

The rules will form another barrier against confidence tricksters who seek to persuade people to invest the whole of their pension provision in a fraudulent scheme, leaving them with no retirement savings whatsoever.

It will be important when advising people who have been victims of future pension transfer scams to check whether trustees and scheme managers have complied with their new obligations under these regulations and whether they have carried out appropriate due diligence before proceeding to allow the transfer of pension funds.

Get in touch

If you have been the victim of a pension mis-selling scam it is important to take detailed legal advice as quickly as possible.

We have seen cases where fraudsters have advised people to sit tight and wait and see how the investment pans out because it will all come good in the end. Delaying in this way can deprive someone of the ability to bring a claim against a negligent advisor.

If you have any queries about this area of law, please contact James Taylor, a specialist lawyer dealing with Financial Services Disputes.