On average, a victim of a pension scam loses £91,000. But what are the roles and responsibilities for schemes when it comes to keeping members safe?

It’s no surprise that pension scams are on the increase.

Since freedom and choice was introduced, criminals have seen DC (and DB to DC transfer) pots as a whole new avenue by which they can exploit vulnerable people.


What can trustees do to protect members from scams

And the stakes are high. In fact, new data from TPR and the FCA found that the average victim of a pensions scam loses £91,000 each.

The government has responded with a new awareness campaign to try and help educate the public about scams. But what must those responsible for the governance of schemes do to keep members safe?

We read through the Pension Scam Industry Group’s 78-page code of guidance as well as the Regulator’s guide to communicating with members to find out.

1) Give members the right information

The regulator expects schemes to make members aware of the dangers of pensions liberation. Specifically, the DC code says: ”We expect trustee boards to include clear information on how to spot a scam in all relevant communications to members, including within standard communication materials such as the retirement wake-up pack.”

What do trustees need to do?  The regulator points to its scorpion campaign as information that must be provided to members

What should trustees do?  The new ScamSmart leaflet created by TPR and the FCA has good advice for pension scheme members on how to spot scams. Including this prominently in member communications can help raise awareness.

2) Point members to guidance

Trustees have a regulatory responsibility to signpost guidance to members at various points in their savings journey.

The DC code includes this obligation as part of trustees’ responsbilities around communicating at-retirement options. But there is no doubt that guidance and advice can help to protect members falling victim to scams.

TPR’s website reads: ”You must give members a statement which sets out the availability of guidance and advice and encourages members to read the risk warnings. We recommend that you also ask members to sign a declaration to confirm whether they have received Pension Wise guidance or regulated advice, and to confirm that they have read any generic risk warnings.”

Members being targeting by scammers will, of course, be being duped into transferring money, so this regulatory requirement can help keep them safe.

What must trustees do?  By law - trustees are required to make sure that members are signposted to guidance, especially Pension Wise.

In the case of DB to DC transfers of pots over £30,000 trustees must make sure that members have taken independent financial advice.

What should trustees do?  Adopting the regulator’s recommendation that members must sign a declaration confirming whether they have received guidance or advice would help identify those most at risk.

Signposting members to advice can also help make sure that people make the right decisions. This is also true for trustees of DB schemes where members wish to transfer pots of less than £30,000

3) Carry out due digilence - part one - questions for the member

Where members are considering transferring out, schemes are required to carry out due diligence. The first step is to establish how someone became aware of the new scheme, and why they want to transfer.

This is a tricky area for trustees, since there is an expectation that member transfers will be carried out within six months.

However the guidance here is clear, and there are several things that trustees or other scheme staff need to establish.

What must trustees do? Trustees need to establish how the member was contacted, whether they have taken appropriate advice and that they’ve had all the correct information.

Follow this checklist to ensure that you’ve done your due diligence on member decisions:


scams - questions for members

What should trustees do?  Keep an eye out for other red flags that suggest a member may be headed for a scam. Point members to guidance. And where possible suggest members that are at risk get additional advice from a regulated adviser.


4) Carry out due diligence - part two - finding out about the receiving scheme

The second and perhaps even more critical component of due diligence is to find out about the scheme a member is considering transferring into.

Trustees have a regulatory requirement to make sure that any receiving scheme is registered with HMRC. But the regulator has been clear that this is not the only check that scheme administers must carry out.

You need to check for red flags, which may suggest that a scheme is not legit.

What must trustees do:  First trustees need to find out information about the registered scheme.

Follow this checklist to make sure you have all the information you need:

Status of a scheme

It’s also useful to find out how a scheme has been promoting and describing itself. Trustees may spot red flags that a member has missed such as references to overseas investments or other opportunities that sound too good to be true.

Again, the Regulator has provided a handy checklist of things to look out for:

promotion checklist

By carrying out all these checks, trustees can satisfy themselves that a scheme is legitimate and make sure that members are not transferring money into a scam.

5) Delaying or blocking a transfer

If a trustee or scheme administrator is concerned that a member is trying to move their savings into a scam, there are limited courses of action that are open to them.

As described above, due digiligence is the first step, but if trustees need more time to investigate thoroughly, they may be able to apply for an extension. However, suspicion of a scam is not a sufficient reason on its own to ask for a delay.

Trustees must meet the regulator’s other criteria and show they’ve not had time to investigate thoroughly.

The Pension Scam Industry Group’s code of guidance explains: “Where there is doubt, trustees should ensure that they take sufficient time to perform reasonable due diligence, without refusing to carry out a transfer to a valid arrangement.”

It’s an area where trustees can often feel ‘damned if they do and damned if they don’t’, but the regulator clearly states that if trustees are concerned aout liberation they are within their rights to request an extension as long as they do so within the six month period.

The website reads: ”Where trustees suspect a pension scam they should consider making such an application as soon as due diligence raises concerns and they consider that the criteria to request an extension are met.”

If trustees or scheme staff think that there is a material risk of a scam, things get even murky. It is not always possible to delay or block a transfer even when a scam is suspected.

What must trustees do: Ensure that all due diligence has been properly carried out.

If there is no material risk of a scam - transfers must be carried out quickly.

If there is a risk of a scam, the first thing to do is to write to members explaining your concerns. Make sure to keep a record of any communications.

The next stage is to make find out whether members have a statutory right to transfer. This may involve taking legal advice.

If the member does not have a right to transfer, or if, following the assessment of the risks, it is decided that the transfer should not proceed, the following actions should be taken:

  • Write to the member and inform them that, on the evidence available, the transfer will not be paid.
  • Include the reasons why the transfer cannot be paid.
  • Provide information about potential consequences of a pension scam and an explanation of the most significant concerns preventing the transfer.
  • Where appropriate, for example where there is an active letter of authority, write to the administrator of the receiving scheme and inform them that, on the evidence available, the transfer cannot be processed.
  • Where appropriate, report the scheme, the administrator and anyone else involved, to Action Fraud via: http://www.actionfraud.police.uk/report_fraud
  • Where appropriate,TPR and/or the FCA should be notified

If the member challenges a decision to block a transfer and provides sufficient additional information to satisfy the concerns that have been raised, then the trustees, providers or administrators should proceed with the transfer and inform the member of their decision.

When dealing with an insistent customer, or where a decision to make a transfer is taken despite concerns about pension scams, the trustees, providers or administrators should ask the member to take impartial guidance on the risks of scams.

If the member insists on making a transfer trustees need to make sure that the discharge forms that the member has signed are suitably robust to reduce risk

Trustees, providers and administrators should use their own judgment, take appropriate advice if necessary, and record their decision.