Pension companies need more powers to help stop fraud

Greater powers are needed to halt ‘scam’ pension transfers – survey

Nearly eight out of ten (78 per cent) retirement savers agree that pension providers should be able to stop a pension transfer if fraud is suspected, a new survey has revealed.Nearly eight out of ten (78 per cent) retirement savers agree that pension providers should be able to stop a pension transfer if fraud is suspected, a new survey has revealed.

Research for The People’s Pension1, conducted by YouGov, found that more than three quarters of those questioned (78 per cent)2 agreed that pension companies should be able to step in to stop a pension transfer if they believe it’s a scam.

These findings come at the same time the government is being asked to consider including an amendment to the Pension Schemes Bill, which would enable pension companies and trustees to halt a transfer out of a scheme if it triggered any one of a number of ‘red flag’ warnings. Nearly half (49 per cent) of those surveyed strongly agreed that pension companies should be able to intervene in these cases.

Concerns have been raised that the coronavirus pandemic increases the risk that fraudsters will attempt to deprive savers of their retirement savings and the survey found that one in five (20 per cent) UK adults with a pension are now more worried about being a victim of a pension scam compared to a year ago. The same poll also showed that just over a third (34 per cent) of UK adults are more worried about being a victim of some sort of financial scam now compared to 12 months ago.

Phil Brown, director of policy at The People’s Pension, said: “The overwhelming consensus from the general public is that pension companies should be given the legal power to put the brakes on a transfer they think might by fraudulent. As it stands, providers and trustees can merely advise a customer when their suspicions are aroused and our research3 shows that £31 million of transfers went ahead last year even after the savers were made aware of the concerns. The industry needs the support of policy makers if it’s to win the war against merciless fraudsters.”

On Thursday, November 12th, former pensions minister Baroness Ros Altmann will chair a webinar – Who is protecting my pensions?3 – to discuss what can be done to stop fraudsters. She will be joined on the panel by Phil Brown, Margaret Snowdon, the chair of the Pensions Scams Industry Group (PSIG) and Stephen Timms MP, the chair of Parliament’s Work and Pensions Committee. Mr Timms proposed amendments to the Bill which would hand greater powers to trustees and although those were formally withdrawn at committee stage last week, the Government has committed to cross-party talks on the issue ahead of November 16, when the Bill reaches its final stages.

In September The People’s Pension and The Police Foundation published Protecting People’s Pensions: Understanding and Preventing Scams3, which called for urgent and decisive action to be taken by the authorities to stop criminals from the stealing the life savings of workers.

ENDS

What to consider when transferring schemes

The UK occupational defined contribution (DC) market is one of the least consolidated in the developed world, but things are changing. Single-employer DC trusts are in the spotlight.

At the time of writing, there are 2,180 pension schemes in the UK. That’s considerably more than Australia, for example, with just 233, and Mexico, which has only 11 workplace pension schemes.

A growing trend for consolidation

The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) are encouraging consolidation in the UK DC landscape, promoting fewer, higher quality, better regulated schemes.

Single-employer DC trusts are being pushed along by a unique range of factors, including greater costs. Short service refunds were abolished just over 4 years ago. This prompted a rise in membership and a proliferation of small pots for many active DC pension schemes. However, for the larger number of smaller pensions schemes who offered this option, it can be costly and complicated to administer.

In the same year we saw the new 0.75% charge cap for default funds. Larger schemes, like The People’s Pension, have used their scale to make sure high-quality investment options remain available below this rate. Smaller schemes may have difficulty achieving this and, if they want active investment options, the charge cap poses significant challenges.

Regulators expect high standards of governance

Other pressures come from The Pensions Regulator. Its 2016 paper on 21st century trusteeship offered clarity on what they expected of pension scheme trustees. This includes:

  • their roles
  • board composition
  • risk management
  • and a host of other issues.

This renewed focus makes it abundantly clear that the expected standard of governance is high.

The regulator has also pointed out to trustees its high expectations of both transparency, not least in the chair’s annual statement, and good investment choices for members. DWP regulations also mean trustees must strengthen their approach to environmental, social and governance (ESG) issues in their investment options.

Trustee boards are now required to consider ESG. And this means time and money spent on adopting new policies and working with investment managers to offer new options. These are all material changes – requiring substantial amendments to working practices, policies, processes and the amount of time individual trustees spend on governing their schemes.

Trustees are feeling the pressure

Trustees that signed up to the role expecting a specific time commitment will be interested that the regulator is now asking whether quarterly meetings are enough – and whether the board should meet every month instead?

This increased burden on trustee boards is laid bare by data from the regulator. They have 5 key governance requirements – which range from independence to providing good value for members.

According to a May 2019 TPR report, just 23% of all pension schemes met 2 or more of these requirements. This is perhaps unsurprising, given that in the pensions market, the benefits of scale can be felt in governance, good value and the quality of investment options.

Master trusts: an option for consolidation

If the occupational DC pension market continues to consolidate it seems reasonable that trustee boards of single-employer DC schemes will look at master trusts as a possible consolidation option.

Master trusts operate under the same regulations and laws as single-employer DC trusts, unlike contract-based schemes, commonly referred to as group personal pensions. This means that the trustees have the same direct responsibility toward members’ best interests. Master trusts are just one of several available options, which is why we’ve created a ‘key considerations guide’, setting out what the journey could look like.

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Find out more about what to consider on our webpage about consolidation of trust-based occupational pensions.