TPR launches pension scam awareness campaign

Pension liberation continues to be a major focus for pension scheme trustees faced with transfer requests from members wishing to move their assets from their current pension scheme to another arrangement.

According to the latest figures from TPR, the known amount of funds paid into pension “scams” now stands at £495 million.  However, it is likely that the actual amount is significantly higher, with not all scam activity being reported.

Since HMRC tightened up its processes for dealing with pension liberation in October 2013 (as outlined in our Alert – Pension liberation: Latest news) with a view to ensuring that fewer sham arrangements are set up, HMRC has received significantly fewer applications for registration (4,530 since 21 October 2013, compared with 11,184 between 6 April – 21 October 2013).  Of the applications received since 21 October 2013, HMRC has refused to register 8%.

Although the underlying message remains the same, TPR’s change in terminology, from “liberation” to “scams”, places greater emphasis on the fact that such arrangements may be illegal, not just unwise from a tax perspective.  Given the Government’s plans to allow individuals freedom over their pension savings from April 2015, it is unsurprising that TPR is keener than ever to raise awareness of the issue, so that pension scheme members are armed with the facts in the face of a growing problem.

Using several examples of real life scams, TPR’s latest publicity campaign aims to make pension savers aware of the significant risks attached.  Not only are pension scheme members at risk of losing their entire pension savings, but they could also be hit with a tax charge of up to 55% of the value of the payment if the transfer does not count as an authorised payment for the purposes of the pensions tax legislation.  Trustees can also face a scheme sanction charge, of at least 15% of the value of the payment.

TPR is calling on trustees, administrators and pension providers to ensure that members receive regular and clear information about the risk of pension scams.

Working on the basis that the more pension scheme members know about the risks, the less likely they are to fall for them, TPR recommends that members are sent regular information on how to spot pension scams, for example, with their annual pension statement or any other member communication.

In its pension scams action pack, TPR provides trustees with guidance on how to be proactive in educating their members about pension scams and a checklist to help spot them.  These set out a number of “warning signs” to alert trustees that a pension scam might be being attempted and explain how trustees can establish certain facts to satisfy themselves that the scheme to which the member wishes to make the transfer is a legitimate, registered pension scheme.

TPR notes that common features of pension scams include:

• phrases like “one-off investment opportunities”, “free pension reviews”, “legal loopholes”, “cash bonus” and “government endorsement”
• victims being approached out of the blue over the phone, by text message or in person door-to-door
• transfers of money or investments overseas, meaning the money can be more difficult to recover
• access to pension savings before age 55
• no copies of member documentation
• victims being encouraged to speed up transfers of their money to the new schemes, including the use of couriers who wait at the individual’s house while they sign the paperwork.

For more on the steps for trustees who suspect a pension scam, and details of the due diligence that they should undertake on receipt of a transfer request, see our Alert: Pension Liberation – what trustees need to know.

Trustees have a duty to make a cash equivalent transfer whenever the legislative requirements are met.  As TPR does not have the power to waive this duty, this can leave trustees in a difficult position as they will be required to make the requested transfer within certain time limits set out in legislation.

One option for trustees is to apply to TPR for an extension of the time limit for transferring the member’s funds (broadly, six months from the date of the guaranteed cash equivalent).  This can be useful, particularly where trustees have made an enquiry of HMRC in relation to the proposed receiving scheme.  HMRC’s own time limits – 45 days for a receiving scheme to respond to enquiries, with a further three months for HMRC to respond to the transferring scheme – mean that the time limit for trustees to make the transfer payment is easily used up through no fault of their own.

While TPR is unable to give guidance on the approach it might take if trustees refuse to pay a transfer (as each case is different on its facts), it explains that “where the transferring trustees or administrators can provide evidence for concerns that member funds may be at risk, then this would be a factor to consider when deciding whether to take action in respect of the non-payment of a transfer”.

By way of example, TPR explains that if trustees have evidence that, following a transfer, cash would be passed back to the member before their normal minimum pension age (age 55), TPR would give this factor “significant weight” in assessing whether it would be appropriate to pursue any action in relation to an unpaid transfer.

The key thing for trustees is to be able to demonstrate that they have taken steps to establish the legitimacy of an arrangement where they have delayed making a transfer for that reason.  As TPR notes, trustees who are concerned about processing a transfer request may wish to seek legal advice.

If you have any questions about any of the issues raised in this Alert, please speak to your usual Sackers’ contact.