The Government has finally bowed to industry pressure and the weight of logic by confirming it plans to ban pensions cold-calling.
While full details have yet to be published, the Treasury has also indicated providers will be given greater powers to block transfers to suspicious schemes. In addition, policymakers plan to crack down on the abuse of SSASs by fraudsters.
Advice firm Red Circle Financial Planning director Darren Cooke was the driving force behind the change in heart from Number 11, launching a petition that attracted thousands of signatures and united the wider industry around this common cause.
Such informal, social media-based campaigns could become the norm in future and give advisers – whose knowledge and expertise are woefully underused by policymakers – a chance to really influence Government decision-making.
The big danger now is that the Treasury sees this as “job done” on tackling pension scams. That would be a huge mistake and represent a wasted opportunity to put scammers to the sword by implementing a broader set of reforms.
With that in mind, we have come up with eight proposals that could form the basis of a meaningful crackdown on pension scams:
- Early access to tax-free cash in financial hardship. Where financial hardship can be evidenced, people should be permitted to access the portion (commonly 25 per cent) of their pension savings they are entitled to receive tax free. If people in financial hardship were allowed to access some of their pension savings in this way, they would be less likely to turn to scammers to get at their funds.
- Prevent “phantom” occupational pension schemes. Occupational pension schemes should be prevented from being registered, or de-registered if they already exist, where the main purpose cannot be demonstrated to be for the provision of benefits for employees or directors of the business, including connected parties of employees and directors. This would ensure occupational pension schemes are being set up for the purpose for which they are intended.
- Permitted investments list for Sipps. Reintroducing this would make it harder for pension fraudsters to succeed with scams based around “too good to be true” investments not on the permitted list.
- Mandatory professional trustees for SSASs. Reinstating the requirement to have a professional trustee would make it significantly harder for fraudsters to set up a SSAS in order to use it as a vehicle to trick people into giving away their pension savings.
- Single member pension schemes must register with The Pensions Regulator. Currently, an occupational pension scheme that just has one member – often a SSAS – does not have to register with TPR in the same way that schemes with multiple members do. Requiring single member schemes to register with The Pensions Regulator would make it harder for pension scammers to set up these schemes and use them for fraudulent purposes.
- Naming and shaming recognised pension scams. All known current and historic types of pension scams should be made publicly available by HM Revenue & Customs. A similar approach is already taken by HMRC in relation to tax avoidance schemes. Extending this to pensions would enable people to check if they are being targeted by recognised scams.
- Government consumer awareness campaign. Pension scammers are criminals so the ban on cold-calling, while making it clearer to people they are being targeted by a scam, is not going to stop the fraudsters from trying. Advisers and consumers need to be aware that pension fraud can be reported easily to the police online at http://www.actionfraud.police.uk/. The more often a fraudulent scheme is reported, the higher the likelihood of action being taken against it. A few high profile arrests and convictions would go a long way to stemming the flow of money out of savers’ pockets and into the hands of criminals.
- International co-operation. Many pensions and investment frauds now contain an overseas element, be it the location of the asset involved or the jurisdiction from which a cold-call originated. Working with authorities outside the UK is going to be important to ensure fraudsters do not simply relocate and carry on with the exact scams they are perpetrating today.
The campaign so far to deter fraudsters and protect savers has been hugely successful but we must be ambitious. Now is the time to go for the jugular of pension scammers, not rest on our laurels.
Tom Selby is senior analyst at AJ Bell