In this week’s update we focus primarily on pension scams, with the Work and Pension Committee’s report and recommendations as well as updates from the Pensions Regulator and the Pension Scams Industry Group. We also cover the further extension of Corporate Insolvency and Governance Act measures, new factsheets published by the Pensions Ombudsman, the FCA’s final guidance on DB transfer advice and the Regulator’s updated guidance on the use of cross-border schemes for auto-enrolment purposes.
Pension scams: the WPC report and recommendations
The Work and Pensions Committee (the WPC) has produced the first of three reports as part of its inquiry into how pension savers are protected following the introduction of the pension freedoms in 2015. The first report looks at the protection of pension savers from pension scams and sets out a number of recommendations that the WPC believes will improve the existing protections.
The report notes that the Government and regulators are still implementing the ‘necessary support framework’ to address pension scams and “calls on them to act quickly and decisively to protect pension savers”. The recommendations made include:
Recording and reporting
The report notes that over £30m of scammed pension money was reported to Action Fraud, the national fraud and cybercrime reporting centre, between 2017 and August 2020 but this is a significant understatement of the total amount lost to scams. The Pension Scams Industry Group estimates that the true figure is more likely to be in the region of £10bn lost by 40,000 individuals since 2015.
Many victims do not report a scam and others might report a considerable period after scamming has occurred. When they do report, victims expect relevant action to be taken.
However, the report explains that a 2019 investigation by The Times identified ‘serious failings’ at Action Fraud. Generally, there have been issues in managing victims’ expectations and actioning cases. Although these failings have since been partially addressed, action is still required.
The City of London Police should make annual reports to Parliament on the steps taken to remedy the issues. Action Fraud should also provide clear guidance on reporting and have a co-ordinating role for victims.
Prevention: the Pension Schemes Act 2021 and secondary legislation protection provisions
The new legislation intends to address potential shortcomings with the present transfer regime by allowing regulations to be made which will only allow a member to transfer under statute if certain conditions are met. These include (but are not limited to) conditions relating to a member’s employment or residency and may also include protections in the form of a flagging system; a red flag would require that trustees block a transfer and an amber flag would suspend the transfer process.
The WPC believe that the DWP should produce a review within 18 months of the legislation being published, to cater for any relevant legislative changes that might need to be made this Parliament.
Prevention: regulatory framework for financial promotions
To ‘create parity’ between traditional media which is regulated and new media (such as search engines, social networks and paid for advertising on online platforms) the latter should become subject to the Financial Conduct Authority (the FCA) regulated framework for financial promotions.
The Online Safety Bill which at present does not include financial harms should be expanded to cover online investment fraud.
Enforcement: new Pension Scams Centre to be set up on statutory footing
The agencies responsible for enforcement overlap and are fragmented; the 2012 set up of the multi-agency task force, Project Bloom, was intended to address this but lacks capacity.
The WPC recommend that it be given a statutory footing as the Pension Scams Centre with specific funding and staffing.
Supporting pension scam victims
The first recommendation in this area involves HM Treasury recognising that in certain cases, where the saver has been a victim of a crime and made no financial gain from early access to benefits, it might not be in the public interest to pursue the charges due.
The WPC also recommend that pension schemes be required to inform individuals who wish to transfer or access pension benefits before the normal minimum pension age of 55 of the unavoidable tax charges that will be imposed.
The third recommendation in this area is that the FCA has a more ‘ambitious plan’ to address scams – the WPC did not agree with the FCA as to its levels of prosecution. The WPC identified 25 convictions when the FCA had referred to a very large number of prosecutions.
The DWP should also offer all pension scam victims support.
Independent trustee appointments
The Pensions Regulator (the Regulator) should review the ‘value for money’ independent trustees appointed to scam schemes provide within a year of appointment.
It will be interesting to see how the Government responds to the WPC report’s recommendations and what additional measures will be implemented to improve protection, especially given the increasing prevalence of scams generally following the onset of the pandemic. Fraudsters are quick to come up with new ways to scam and both the agencies responsible for protection and the pensions industry need to adapt quickly as well.
Pension scams: Regulator calls on schemes to report pension scams to Action Fraud
Following on from the issues of under reporting noted in the WPC report, the Regulator has urged the pensions industry to report suspected pension scams to Action Fraud, after a sustained decrease in reporting.
Data from Action Fraud highlights an almost 80% drop in pension scam reports from 1,788 in 2014 to 358 in 2020. Although there has been a small increase in 2021 to date, the Regulator is concerned that the lack of reporting is concealing the ‘true picture of the pension scams landscape’.
PSIG revises code on combating pension scams
The Pension Scams Industry Group has published an updated version 2.2 of its Combating Pension Scams – a Code of Good Practice. Although the Code does not have a statutory footing, the pensions industry has adopted it as good practice and indeed is ‘urged’ to do so by the Pensions Minister.
The new version includes updates on scam prevention and how scams are evolving. There will also be further updates to incorporate the pension transfer changes which will be introduced by the Pension Schemes Act 2021 and secondary legislation and these are expected later this year.
Increase in fraud compensation levy following pension scams case
In our 13 November 2020 Insight Update we reported on the High Court’s ruling that, in certain circumstances, the Fraud Compensation Fund (the FCF) can compensate victims of pension scams.
The FCF is managed by the Pension Protection Fund (the PPF) and is funded through the fraud compensation levy. Following this ruling the PPF has confirmed that it will need to increase the levy from 25p per member in 2020/21 to 75p per member (30p for master trusts) in 2021/22.
The levy is to allow for the claims received from relevant occupational pension schemes established as a scam vehicle which, to date, value over £40m with further claims expected. The PPF’s 2019/20 accounts showed that the FCF had £21.5m in assets which means that further monies are needed to fund the additional amounts required. The levy will be collected by the Regulator with the other fees and levies which must be paid.
CIGA extension regulations – wrongful trading, winding-up petitions and moratorium procedure
The Corporate Insolvency and Governance Act 2020 (see our insight article) introduced both permanent corporate insolvency measures and temporary ones to protect businesses which were detrimentally affected by the impact of the pandemic.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021 extend:
- Wrongful trading: the period within which personal liability is suspended for wrongful trading from 30 April 2021 until 30 June 2021 (a court is to assume that a person is “not responsible for any worsening of the financial position of the company or its creditors” that occurs from 26 November 2020 to the end of June 2021);
- Contractual term and winding-up petitions: temporary modifications concerning the use of certain types of contractual term and winding-up petitions to 30 June 2021 (to protect companies from the effects of coronavirus – no winding-up order will be made where the reason for debts being unpaid is due to coronavirus during the period 1 March 2020 and 31 June 2021); and
- Moratorium: the relaxation of entry requirements until 30 September 2021 for the moratorium procedure which gives companies a formal ‘breathing space’ to seek a rescue or restructuring plan.
The latest extensions are designed to provide companies with additional ‘breathing space’ whilst the effects of the pandemic continue to have effect and to “deliver certainty to businesses through this challenging time”. The regulations came into force on 26 March 2021 and are presently awaiting Parliamentary approval.
Pensions Ombudsman factsheets – early resolution service and investigation of complaints
The Pensions Ombudsman has published a factsheet about its early resolution service (ERS) and a new version of its how we investigate complaints factsheet.
The ERS factsheet explains that the ERS provides an informal and streamlined approach to dispute resolution (having taken over the dispute resolution role of The Pensions Advisory Service in April 2018) and sets out how the service operates and what options are available.
Trustees may wish to refer to these factsheets when providing information to members and beneficiaries about dispute resolution, for example, when acknowledging an application or when providing details of a decision made under the scheme’s internal dispute resolution procedure, when the applicant must be given relevant details about the Pensions Ombudsman.
FCA final guidance on DB transfer advice and joint Pensions Regulator/ FCA guide on financial matter support
Following its 2020 consultation, the FCA has confirmed Finalised Guidance on advising on defined benefit (DB) transfers. The FCA believes that it is in the ‘best interests of most consumers to stay in their DB pension’. The guidance supports good practice and processes within those firms providing DB transfer advice which is designed to improve the suitability of the advice and, in turn, outcomes for members.
The FCA and the Regulator have also published a Guide for Employers and Trustees which outlines what employers and trustees can do to assist members with financial issues, without having to be FCA-authorised. This provides useful assistance with examples of what can be done and what could trigger a requirement for authorisation.
Pensions Regulator updates its cross-border guidance
The Regulator has updated its cross-border guidance for occupational pensions schemes following the end of the Brexit transition period to include information regarding automatic enrolment (AE) duties in respect of employers who use or intend to use a non-UK occupational or personal scheme to comply with AE.
The guidance explains that, following the UK’s withdrawal from the EU, whether an employer can continue to use an EU/ EEA scheme for AE purposes depends on whether the scheme is an ‘AE scheme’ or a ‘qualifying scheme’. That is whether it is a scheme a worker is automatically enrolled into or another qualifying scheme the worker is already a member of, meaning he/ she does not need to be automatically enrolled.
As a non-UK scheme can no longer be used to satisfy the AE requirements since 1 January 2021, affected employers would need to automatically re-enrol any affected jobholders into an alternative AE scheme which is established in the UK. However, if the non-UK scheme was a ‘qualifying scheme’ at the end of the transition period, it might still be possible for this scheme to continue to be used if it still meets the relevant quality requirements.
Although cross-border issues such as this will not affect many schemes (the Regulator references there being only 40 cross-border schemes), any that do come within scope should ensure that relevant requirements are met including in relation to AE.