The Pensions Regulator (TPR) has written to 14 pension schemes expressing concern that they may have been overly generous with the offers made to scheme members to entice them to transfer their benefits out of those schemes. TPR's particular concern is the impact on scheme funding, and remaining members, where members are paid over the odds to leave the scheme. However, there are also risks to members leaving DB schemes, particularly with regard to what they do with their payment and the rise of "pension scams". A record £21 million was transferred out of DB schemes in the year to March, and with payments often in the region of £250,000 to £400,000, recipients have proved attractive targets for fraudsters.
A recent campaign by the Financial Conduct Authority and the Pensions Regulator showed 253 scam victims reported losses of more than £23 million (averaging £91,000 per person) from their pensions in 2017. This is likely to be the tip of the iceberg. A recent Ombudsman decision highlighted that even the Police are being duped as a result of pensions scams - in a recent determination, the Ombudsman had directed the Northumbria Police Authority to reinstate the accrued benefits of one of its officers because it failed to warn him about pension scams.
Individuals are being targeted for free pension reviews, promises of guaranteed high profits, early access to pension or exotic overseas investments, including hotels, forestry and green energy schemes. The end result is for the victim of the scam to transfer their benefits away from the bona fide registered pension scheme, which the employer provides, to one where the victim’s funds are drained by the scammers. In the Northumbria Police case, although the individual involved requested the transfer, the Police failed to send him a leaflet provided by TPS warning about potential scams and conduct, adequate checks and enquiries in relation to the new pension scheme.
While, at the moment, the responsibility for undertaking these steps falls on the pensions scheme provider, or trustees and administrators, the practical consequences of dealing with the scam will often fall back on the employer. We are already seeing cases where individuals believe employers have not taken sufficient steps to protect them employees. Equally, we have seen cases where individuals may have built up pension pots, but as a result of being scammed, now cannot afford to retire and therefore present succession planning issues for the business.
So what can employers do?
Although currently there is no strict legal liability on any employer to warn its employees in relation to pensions scams, it is possible for businesses to take some practical steps. Provision and circulation of appropriate literature is always advisable, as are appropriate processes and safeguards operating around any pension transfer request. Given that levels of disengagement around pension issues across most businesses are very high, one way to address this is to have professional external engagement with employees via training sessions, webinars or updates highlighting the danger of pension scams and other risks.
Lindsey specialises in complex and high-value disputes, including pension and trust disputes, and regularly advises clients on strategies to minimise and mitigate potential risks to their businesses.
Pension transfers 'too generous', says regulator Pension schemes have been asked to consider whether they are being too generous when offering lump sums to people thinking about cashing out of "defined benefit" retirement schemes. It comes amid concern that overly generous payouts could damage the remaining funds. The Pensions Regulator wrote to 14 schemes earlier this year, encouraging them to consider making reductions. A record £21bn flowed out of defined schemes in the year to March.