Protecting pension savers—five years on from the pension freedoms: Pension scams Contents


Public bodies and the use of enforcement powers

94.Pension scams can involve a complex collection of overlapping enforcement bodies. A Specialist fraud investigator spoke to the Police Foundation for its report, Protecting People’s Pensions: Understanding and Preventing Scams, and said:

There are so many regulatory bodies … [it’s] a good area for criminals to make use of the greyness and figure out the next scam.

The regulatory bodies include, but are not limited to, the bodies below.

The Pensions Regulator

95.The Pensions Regulator is responsible for regulating trust-based occupational pension schemes and employers’ automatic enrolment duties. The Pensions Regulator has powers for criminal prosecution of certain regulator offences, it can prohibit pension scheme trustees from practicing and issue fines for breaches of legislation.

96.The Pensions Regulator told us that it “is making greater use of our existing powers and using them more innovatively to clamp down on scammers.” It described its approach as Protect, Pursue, Punish and Recover:

Protect - appointing an independent trustee to scam schemes to take over the administration of the scheme preventing more people from becoming victims.

Pursue–investigating with a view to prosecute for fraud or other offences.

Punish–prosecuting offenders through the courts.

Recover–using the Proceeds of Crime Act 2002 to recover assets back to the schemes.140

When our inquiry launched in July 2020, the regulator was carrying out seven criminal investigations into scams involving 52 schemes, 38 suspects and a loss of around £55m. In the 18 months leading up to our inquiry the Pensions Regulator prosecuted two people for fraud in unrelated cases.141

The Financial Conduct Authority

97.The Financial Conduct Authority (FCA) is both the criminal law enforcement agency and the regulator for the financial promotions regime. The FCA described its enforcement role to us in its written evidence:

Where we identify serious misconduct through the work described above, firms and individuals are referred for enforcement investigation. In regulatory investigations, we are likely to focus on whether regulated persons breached our requirements by acting without integrity, failing to manage conflicts of interests and/or providing unsuitable advice to consumers. Where we establish breaches, we are likely to pursue financial penalties, prohibitions of individuals and redress for consumers where feasible. We also prosecute criminal offences where appropriate, including in respect of unauthorised activity. We will also work with the police and other law enforcement agencies depending on the type of offence.142

98.The Department for Work and Pensions outlined to us the action being taken by the FCA when our inquiry launched:

We understand that the FCA is currently undertaking approximately 20 investigations into firms authorised by them where consumers’ pension funds may have been exposed to high risk investments in connection with pension switches or transfers. They are also investigating the roles of related individuals. Clearly an investigation does not necessarily lead to prosecution of civil law action, but some do.143

The Insolvency Service

99.The Insolvency Service is responsible for tackling misconduct by companies and misconduct in the process of putting a company into liquidation. It has the power to fine companies and disqualify company directors or insolvency professionals. The Pensions Regulator told us that:

Between 2015 and 2019, it applied to the courts to have 24 companies wound up, connected with schemes that elicited £202m worth of pension contributions, and secured directorship disqualifications against eight directors.144


100.HMRC is responsible for enforcing tax legislation and tackling tax avoidance. It can issue penalties to those in breach and can refuse to register pension schemes. The Economic Secretary to the Treasury told us:

HMRC is responsible for registering pension schemes for tax relief and exemption. It has done much to combat pension scams facilitated through newly registered pension schemes. In 2013, new legislation was introduced to help detect, disrupt, and deter promoters of these schemes leading to an 88% reduction in applications to register new pension schemes–safeguarding taxpayers and their savings. In addition, a “fit and proper test” for scheme administrators was introduced in 2014 through which scheme administrators identified as not fulfilling the appropriate criteria are prevented from registering new schemes and de-registered from any of their existing schemes. Through this process, since 2014 HMRC has de-registered 770 schemes that had been, and would have continued to be, used for liberation. HMRC has also dealt with over 20,000 requests from bona fide scheme administrators enquiring about the status of schemes to which their members wish to transfer.145

Information Commissioner’s Office

101.The Information Commissioner’s Office has been responsible for enforcing the cold-calling ban since it was introduced in January 2019. It can issue fines for breaches of the regulations and we were told that it fined a Swansea-based company £130,000 for making thousands of unauthorised direct marketing calls to people about their pensions.146

Police service

102.The police service has powers for criminal prosecution of people who commit fraud. Graeme Biggar, Director General or the National Economic Crime Centre, told us that fraud is the biggest reported crime, accounting for around a third of the total, but has “less than 1% of police dedicated to looking at it.”147

Serious Fraud Office

103.The Serious Fraud Office investigates and prosecutes serious cases of fraud, bribery and corruption.

The Pensions Ombudsman

104.The Pensions Ombudsman investigates and determines complaints and disputes concerning occupational and personal pension schemes. It can investigate pension scams where the complaints fall within its jurisdiction and, if upheld, will make Determinations that are enforceable in court. The Pensions Ombudsman can also make findings of personal liability and make awards for distress and inconvenience. In July 2020, the Pensions Ombudsman, Anthony Arter, told us:

I would hope that if someone believes they have been scammed or they have been scammed, they would make a complaint to me, absolutely. I think it is also worth them informing the regulator, because it takes a different approach—it looks at whether there has been any breach of the regulations—and the FCA, of course, in terms of whether there has been an IFA involved or how they were advised. I think it is quite important.148

The Financial Ombudsman Service

105.The Financial Ombudsman Service can consider complaints about FCA-regulated businesses including pension transfers, and personal pensions and SIPPS. It can award compensation up to a limit for both financial and non-financial loss.

Views on enforcement

106.We heard a range of evidence about the perceived lack of enforcement and regulatory action. Margaret Snowdon, Chair of the Pension Scams Industry Group, told us that there are not many prosecutions, saying: “You can probably count them on your fingers of your hands.”149 Tim Fassam, Director of Government Relations and Policy at the trade association the Personal Investment Management and Financial Advice Association, added:

Alongside the lack of prosecution I would also highlight the lack or certainly the slowness of regulatory action. If you look at one of the scams that will have affected a large number of pension savers as well as other savers, which are mini-bonds, PIMFA members were raising concerns about mini-bonds in 2015 and we are only really seeing action this year. Swift regulatory action, as well as enhanced prosecution, will be absolutely critical.150

Phoenix Group, a FTSE 100 company specialising in the acquisition and management of life and pensions insurance businesses, told us that it is “encouraging to see examples of action being taken” but that “the clear concern is that far too many are simply getting away with it and enjoying the fruits of their certainly immoral and very possibly illegal activities.”151 The National Federation of Occupational Pensioners, which represents individual pensioners, surveyed its members to respond to our inquiry, telling us that respondents suggested that protection and enforcement were too slow, with one saying:

It’s a disgrace that a generally welcomed change did not properly protect individual pensioners. The scammers and fraudsters work in hours and days, while any catch-up protection takes months and years.152

Mr Stephen Sefton, a pension scam victim, said:

Scamming is a Low Risk, High Reward business for the perpetrators. Very, very few perpetrators get prosecuted, regardless of the fraudulent misrepresentations they employ to con people from all walks of life and educational ability. Perpetrators make millions and get to keep it even after the authorities finally catch up and close down the scam.153

The Connaught Action Group, a campaigning group, told us:

We believe that the principal reason why pension scams are so widespread is that the FCA has historically operated, and continues to operate, as a light-touch conduct regulator, both reluctant and slow to bring to bear the consequences of misconduct on the firms and individuals who are responsible and consequently predisposed toward allowing consumers to be exposed to avoidable harms.154

107.According to a freedom of information request, reported in the Times, the FCA did not prosecute any authorised firm or individual over financial promotions between 2013 and 2019 and fined only three groups of authorised firms and individuals.155 We asked Mark Steward, Executive Director of Enforcement and Market Oversight, Financial Conduct Authority, about this. He told us:

That is not entirely true because it is looking at prosecutions of section 21. There have been a very large number of prosecutions involving scams and unauthorised business where the charge that has been laid is, in fact, a fraud charge rather than a charge under the Financial Services and Markets Act, where the instigation of the scam is, in fact, a misleading financial promotion of some kind or other. Every investment fraud involves a misleading representation being made at the outset.156

A further freedom of information request showed that the FCA had secured 18 convictions for fraud between 2015 and 2019, with 10 of these in 2015, and that a further individual had been prosecuted in 2020.157 There were also 5 convictions and one prosecution under section 89 of the Financial Services Act 2012, which covers misleading statements and practices.158

108.We were told by pension scam victims that apparent endorsement from regulators was a deciding factor in the decision to transfer their pension savings to a scam. Sue Flood, a pension scam victim, told us:

The HMRC registration and TPR registration was heavily sold to us throughout the process and we thought that it was all kosher. However, there was a huge difference between what was sold to us and agreed and what it actually turned out to be.159

Pension scam victim, Dennis Waite, told us that “the fact that it was a HMRC and TPR registered scheme, made me feel secure.”160 Since these victims were scammed there has been new legislation to “to help detect, disrupt, and deter promoters of these schemes” and HMRC has de-registered 770 schemes used for liberation.161 Pete Searle, Director, Private Pensions and Arm’s Length Bodies at DWP, told us:

Some of the concerns that were raised by the victims in their terrible stories were around pensions schemes being authorised by HMRC but actually being scams. HMRC has taken steps in recent years to correct that and tighten up the authorisation of pension schemes. There has been a big drop, as a result of that, in the number of schemes that are authorised.162

109.Enforcement work comes at a cost. Many witnesses expressed concern to us about the value for money of the enforcement work of the FCA and the cost to the industry of the Financial Services Compensation Scheme (FSCS). Phoenix Group told us that:

In this regard, it can also be argued that the industry itself is a victim of the scammer as we bear the inherent resource and operational costs of the additional measures required to combat pension scamming. In addition, we also pay for the increased work of the regulators and the Financial Services Compensation Scheme through the industry levy.163

The FSCS can protect pensions that are provided by UK-regulated insurers, such as an annuity, up to 100% of the loss with no upper limit. It also covers investments within a personal pension, such as a SIPP, up to £85,000 if the operator fails and up to £85,000 per person per firm for bad pensions advice. It is funded by a levy paid by eligible firms. The FSCS told us that:

Our mission is to help get customers back on track after their authorised financial services firm has failed. We know many customers are under stress and may be vulnerable as they have lost hard-earned savings, and so our aim is to provide an outstanding customer experience.164

The FSCS currently forecasts that its 2021/22 levy will be £1.04 billion, a 48% increase on the previous year. Caroline Rainbird said that:

We need to tackle the root causes, not just the symptoms, of the costs and distress caused by failures. We are doing everything in our power to try to reduce the levy. Alongside our recommendations, we are continuing to raise awareness of FSCS protection and we are working with the regulators to tackle scams.165

Its Plan and Budget for 2021/22 says that it expects an “ongoing rise in complex pension advice claims” and “further failures of self-invested personal pension (SIPP) operators”. The annual FSCS levy has increased every year since the introduction of the pension freedoms:

This chart shows the annual FSCS Levy from 2013/14 to 2021/22. In 2013/14 it was 285 million; in 2014/15 it was 276 million; in 2015/16 it was 319 million; in 2016/17 it was 337 million; in 2017/18 it was 363 million; in 2018/19 it was 407 million; it was 2019/20 it was 532 million; in 2020/21 it was 649 million; in 2021/22 it was 1,040 million

110.Apex CB Financial Planning Ltd, an Independent Financial Advice firm based in Dorset, told us that its FSCS levy had increased by 282% over the last two years.166 RMI Finance Ltd similarly said that its fees to the FCA for FSCS and PII had gone up from £10,000 to £50,000 in 18 months.167 Mr Philip Milton, representing a group of independent financial advisers and discretionary investment managers managing over £160m for smaller clients, told us that:

Of course, our industry, the honest and law-abiding survivors, has then been obliged to compensate the losing investors to the tune of hundreds of millions of pounds for their stupid decisions to subscribe to such ridiculous things in the first place. That too is wrong morally when the investors should be responsible for buying unregulated investment products in the first place and the FCA has no plans for revisiting how the compensation levy should be collected going forward.168

One written evidence submission from someone working for a Financial Advice company told us:

My firm has provided documentary evidence of wrong doing by firms and still the FCA does nothing! And then, we, the good firms end up with the bill to compensate those wronged investors.169

111.There are many bodies with potentially overlapping enforcement responsibilities relating to pension scams. These include, but are not necessarily limited to: the Pensions Regulator, the FCA, the Insolvency Service, HMRC, Information Commissioner’s Office, the police service, the Serious Fraud Office, the Pensions Ombudsman and the Financial Ombudsman Service. The fragmentation of reporting, investigation and enforcement around pension scams has made tackling pension scams more difficult. We recommend that, as the taskforce responsible for coordinating the response to pension scams, Project Bloom should publish an accessible and publicly available document outlining the roles and responsibilities of all bodies involved in tackling pension scams. It should also report annually on the amount lost by, and reimbursed to, pension savers.

112.The FCA told us that there have been a very large number of prosecutions involving scams and unauthorised business. We do not agree with this assessment. Its own figures—revealed only through Freedom of Information requests—show that there were just 25 convictions. We have heard numerous criticisms that the FCA is not effective in stopping scams, punishing scammers or retrieving scam proceeds. There is a compelling case for a much more ambitious approach. We recommend that the FCA publish a costed plan to raise its game in tackling scams. It should also publish proactively data about its enforcement action, rather than waiting for Freedom of Information requests.

113.We have heard devastating evidence from pension scam victims who were persuaded to hand their savings over to a scammer because the scam pension scheme was registered with HMRC. We welcome the action that has led to a reduction in cases such as this. HMRC should make clear that a tax reference is not any endorsement of a given scheme.

114.Regulators exist to protect savers and not enable scammers. Where a regulator has failed in this fundamental duty they should be held accountable. We recommend that the Government review the recourse available to pension scam victims when the actions of a regulator have been beneficial to the scammer.

115.The pensions and wider financial services industry has a strong reputational interest in preventing scams. The regulators responsible for protecting the reputations and consumers of these industries are largely levy funded to meet this interest. Levy payers, particularly those regulated by the FCA paying into the Financial Services Compensation Scheme, have seen their costs rise in recent years and rightly expect the regulators demonstrate that levies are both set at a reasonable level and spent effectively on enforcement action. If regulators were more effective in preventing pension scams, then the need for compensation would be reduced and the levy on the industry would be lower.

Project Bloom

116.Project Bloom is a multi-agency task force set up to tackle pension fraud. It is not a statutory body and receives no dedicated funding; the bodies which comprise it fund their own work areas. The Pensions Regulator told us that:

With its own funding, Bloom could improve the tasking and coordination of educational, prevention and enforcement activities between regulators, industry, police and criminal justice agencies.170

Margaret Snowdon, Chair of the Pension Scams Industry Group, said there were signs of better collaboration with Project Bloom and that:

The Pensions Regulator is absolutely determined to get that group working together for the benefit of society and victims and it ought to be encouraged and possibly resourced in order to do that properly.171

Phoenix Group, a FTSE 100 company specialising in the acquisition and management of life and pensions insurance businesses, also told us that it was not tenable for Project Bloom to remain unfunded and to rely on the voluntary efforts of the member organisations to deliver its Strategic Action Plan.172 The plan has five key workstreams:

a)Public awareness:

b)Understanding the problem

c)Enforcement and regulatory interventions

d)Legislation and regulations

e)Non-legislative interventions

117.The Pensions Regulator suggested to us that Project Bloom could be improved if it was supported by a pension scams hub:

We believe that a telling way to improve central leadership and coordination by Project Bloom would be to establish a pension scams ‘hub’, staffed by officials on attachment from different agencies working alongside law enforcement and covered by appropriate information-sharing arrangements.173

A similar suggestion was made to us by Andy Agathangelou, founder of the Transparency Taskforce, who said:

We think there needs to be a strategically different approach. The model that is normally used is to create collaboration and cohesion and co-operation between different entities. On the surface that may look like the best thing to do. However, that model is flawed because its success is dependent upon the extremely good interworking between the different agencies. We advocate a different approach, a strategically different approach. We advocate a joint taskforce that is an entity in and of itself that can leverage the information and the powers of all the other agencies, but has central control, central responsibility and central accountability.174

In its report, Protecting people’s pensions: Understanding and preventing scams, the Police Foundation recommended that a central intelligence database should be set up to ensure a more systematic collection and analysis of intelligence.

118.We were told that Project Bloom could be more effective than it currently is. In a joint submission to us, the international law firm Pinsent Masons and Dalriada Trustees, an independent trustee which has been appointed by the Pensions Regulator to be trustee for over 100 schemes suspected of being used for pension liberation or scams, said that Project Bloom is “not effective enough”.175 The joint submission said that the Pension Regulator’s powers to instigate criminal proceedings should be extended to allow it to take action more quickly to protect assets and to “curtail the activities of the suspected scammers at the first sight of concern.” The Association of British Insurers, an insurance industry trade association, also told us that Project Bloom “would benefit from having a stronger leadership by a single body. The taskforce is also quite disengaged with the industry as a whole.”176

119.Project Bloom is a multi-agency task force set up to tackle pension fraud in 2012. It is not a statutory body and receives no dedicated funding. The members of Project Bloom have argued convincingly to us that it has the potential to be an effective body but is restricted by limited resources. The Pensions Regulator and other organisations suggested to us Project Bloom should also be supported by a pension scams hub staffed by officials from the different members of Project Bloom working alongside law enforcement.

120.The establishment in 2012 of Project Bloom, the multi-agency task force set up to tackle pension fraud was an attempt to overcome this. We support the creation of Project Bloom, but it has become clear that it does not have the capacity in its current form to achieve its objectives. It must now be given a statutory remit, an appropriate name—we propose “the Pension Scams Centre”—dedicated funding, and the staffing to manage a pension scams intelligence database alongside law enforcement. To avoid the risks of creating yet another regulatory body in an already crowded field, we recommend that the new Pension Scams Centre should have a board made up of representatives of Project Bloom’s current member organisations, with oversight of a pension scams hub. The hub’s responsibilities would include facilitating intelligence-sharing within the pensions industry and between regulatory bodies. The funding for both bodies should be ringfenced from existing budgets. The new organisation should consult on a public strategy with clear targets for reducing the incidence of pension scams and publish data demonstrating its success—or otherwise—in achieving these targets.

140 The Pensions Regulator (PPS0064)

141 The Pensions Regulator (PPS0064)

142 The Pensions and Lifetime Savings Association (PPS0062)

143 Department for Work and Pensions (PPS0070)

144 The Pensions Regulator (PPS0064)

146 Department for Work and Pensions (PPS0070)

148 Work of the Pensions Ombudsman, Q3

151 Phoenix Group (PPS0043)

152 National Federation of Occupational Pensioners (PPS0066)

153 Mr Stephen Sefton (PPS0009)

154 Connaught Action Group (PPS0010)

157 Name withheld (PPS0079)

158 Ibid.

163 Phoenix Group (PPS0043)

164 The Financial Services Compensation Scheme (PPS0063)

165 Financial Services Compensation Scheme, FSCS publishes 2021/22 Plan and Budget

166 Apex CB Financial Planning Ltd (PPS0027)

167 RMI Finance (PPS0021)

168 Mr Philip Milton (PPS0003)

169 Name Withheld (PPS0049)

170 The Pensions Regulator (PPS0064)

172 Phoenix Group (PPS0043)

173 The Pensions Regulator (PPS0064)

175 Dalriada and Pinsent Mason (PPS0059)

176 Association of British Insurers (PPS0039)

Published: 28 March 2021 Site information    Accessibility statement