Protecting pension savers–five years on from the pension freedoms: Pension scams: Government, The Pensions Regulator and Financial Conduct Authority Responses to the Committee’s Fifth Report of Session 2019–21

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Appendix 3: The Pensions Regulator Response

We welcome the findings of The Work and Pensions Committee’s report on Protecting pension savers - five years on from the pension freedoms: Pension scams. In this response we have outlined our response to the conclusions and recommendations relevant to The Pensions Regulator (TPR). The responses to the recommendations relating specifically to Project Bloom have been addressed through a response on behalf of Project Bloom partners, which was fed into the DWP’s overall reply to the committee’s report.

We recommend that the Pensions Regulator and the Financial Conduct Authority should use their scams awareness campaign, ScamSmart, to warn of the risk of secondary scammers.

We appreciate the Committee’s comments recognising the effective work the ScamSmart campaign has done in combating the risk posed by scammers.

It’s a sad fact that if you have already been a victim of a pensions scam you could then be targeted in a secondary scam (also called a recovery room scam). All savers should be on their guard against secondary scammers. These scams see fraudsters approach those already scammed and offer to help them get their money back in return for a fee.

Anyone who receives an unexpected contact about their pension should report it to Action Fraud or by calling 101 in Scotland. We recommend savers consider getting impartial information and advice before making any decision about their money and visit the ScamSmart site5 for more tips on how to protect themselves from scammers. In the autumn, we have planned for a further burst

of campaign activity, which focuses on the pensions industry signing up to our Pledge campaign to combat pension scams, under which trustees, providers and administrators agree to take steps to prevent savers falling victim to pension scams, including agreeing to observe the Pension Scams Industry Group (PSIG) Code of Good Practice.6

In order to raise the awareness of secondary scams over the next 12 months, TPR and the FCA are considering further communications about the risk of secondary scams and recovery fraud to help protect pension savers.

We recommend that Project Bloom should actively encourage the pensions industry to sign up to the pledge. The Pensions Regulator should monitor and report twice annually to this Committee on the effectiveness of its pledge to combat pension scams.

TPR launched the industry-focused Pledge campaign, working closely with the PSIG in November 2020. The Pledge now covers more than 285 organisations, including 14 Master Trusts which represents over 6 million savers’ pensions pots. To fight the scourge of pension scams and keep up with scammers’ ever-changing tactics, we need a clear understanding of the size of the problem and good-quality intelligence. The Pledge is designed in part to encourage better reporting, which is why we made reporting one of the six principles7 in our Pledge to Combat Pension Scams campaign.

Although voluntary, the Pledge campaign offers the industry the opportunity to show they are taking active steps to help protect savers against the unwanted attentions of scammers. We would support the PSIG’s Code of Good Practice becoming a statutory requirement, resulting in even stronger protection for savers.

We will continue to promote the Pledge with every available tool at our disposal. For instance, on 31 March 2021 we hosted a webinar for trustees, providers and administrators highlighting:

• the devastating impact of scams
• the vital role of the industry
• more detail about the campaign and how they can support it

More than 500 attendees joined the webinar and had the opportunity to ask questions of our expert panel. A recording of the webinar is available on our website and will be promoted through our regular industry communications.8

More recently, we supported the City of London Police in hosting an industry engagement webinar on 27 April to highlight the vital role of the industry and encourage reporting of pension scams and suspicious transfers.

We have worked to support the industry in making the Pledge and continue to meet regularly with those wanting to improve their anti-scams processes. A key aim of the Pledge is that it asks those on the frontline to play their part in combating scammers. It is still too early to fully assess the effectiveness of the campaign, but we will provide twice-yearly updates to the Committee as the campaign develops.

Towards the end of the year we will update the Committee on the:

• Total number of organisations who pledge or self-certified.
• Number of members of Pension Scams Industry Forum who have pledged or self-certified that they are following the pledge principles.
• Number of master trusts who have pledged or self-certified that they are following the pledge principles.
• Number of pensions administrators who have pledged or self-certified that they are following the pledge principles.

We recommend that the Pensions Regulator and FCA should continue to run the ScamSmart campaign, while regularly evaluating whether it is reaching the right groups and whether it has the necessary resource to do so effectively.

Education will always be our most effective weapon against scammers. We seek to raise public awareness of the warning signs of scams through the ScamSmart campaign so that people can recognise and avoid pension scams in the first place.

The total spend between 2018–2020 on the ScamSmart campaign was £5.2m.

However, TPR did not have budget to co-fund the campaign during 2020. We are in the same position in the current financial year, and it falls to FCA to progress, with support from TPR and Project Bloom partners through our no-cost communication channels only. For TPR to continue to support ScamSmart as it has over the past few years, more resource and, more importantly, funding is needed.

As mentioned above, TPR has changed its approach and shifted our focus to the Pledge to Combat Pension Scams campaign as it centres on TPR’s regulated audience, where we see opportunities to positively influence the behaviours of trustees, providers and administrators in order to protect the interests of their savers. As part of the Pledge, TPR is emphasising the need for trustees, and others working in the pensions sector, to increase reporting of suspected scams to Action Fraud. One of the principles of the Pledge commits trustees to report concerns about a scam9 to the authorities and communicate this to the scheme member.

TPR has a close working relationship with the FCA and, together with other Bloom partners, support the promotion of both the consumer-facing and industry-facing campaigns.

We recommend that the Pensions Regulator should review the value for money that scam victims get from trustees appointed to scam schemes within a year.

We are already in the process of ensuring we thoroughly assess the value for money (VfM) provided by the independent trustees (IT) we appoint. This would include comparing how much the IT is able to recover with the costs of them doing so and what impact this will have on members’ pension pots. These amounts are likely to vary from appointment to appointment, but our decisions on making trustee appointments are always driven by our objectives to protect savers, with VfM taken into consideration.

We run a competitive tender process to select the trustees that can provide the best value for money. We have already increased the number of firms we invite to tender for each appointment type. At one time three firms were invited to tender for scams cases, but we now invite a minimum of five, and we expect this number to increase on the conclusion of this year’s annual reviews of the firms on the trustee register. Annual meetings with trustees on the trustee registers are already being held to encourage greater co-operation and build relationships. We hope that this will increase the volume of tenders.

Independent trustees are skilled professionals and play an important role in combating scams. When TPR makes an appointment for IT to take control of a scam scheme’s administration it helps:

• prevent more people becoming victims and losing their pension pot
• preserve any remaining scheme assets
• disrupts scammers
• gather evidence to prosecute perpetrators

Often, by the time IT are appointed, most of a scam scheme’s funds have already been lost and are unrecoverable, which also underscores the importance of communication campaigns to prevent savers from becoming victims in the first place.

Being appointed to a scam schemes can be time-consuming, complex - involve pursuing money across multiple jurisdictions or tax issues – and costly. Often the schemes lack basic administration or financial records. Scheme documentation can be deficient – which can require legal input and court direction to remedy.

Legislation dictates the cost of work done by the IT must come from members’ residual funds. We do have the power to order trustee costs to fall as a debt to the employer. However, in most cases the employer linked to scam schemes is not trading and has no assets.

Once appointed, trustees update us regularly on their progress, including costs and fees incurred and this information is considered in relation to a trustee’s tender for the work and we challenge any significant variance. All trustees on our register have agreed to have their costs and fees scrutinised by an independent adjudicator and to be bound by that adjudicator6 as to fees and costs.

Feedback from some firms suggests these appointments are not generally seen as desirable or profitable often making little to no profit, and often a loss. Not all firms are interested in receiving invitations to tender. This is challenging work, requiring a certain skillset, level of experience and business model.

Finally, it is worth noting that there is often a slim profit margin, and even an uncertainty of receiving full payment at all as assets may prove difficult or impossible to recover. Therefore, only a certain number of independent trustees appear to be interested in the work and only a certain number have the staff with the relevant skills and experience often required at short notice.

We recommend that the Pensions Regulator should explore the case and make a recommendation to DWP for allowing members to more easily transfer out of a scheme where a professional trustee has been appointed before all of the assets are recovered, if this would be in the member’s interest.

Pension scams are devastating, and we understand how disappointing it must be for victims to find independent trustee charges have reduced the amount that can be returned to them further.

However, in most cases, by the time an IT has been appointed, the majority of a scam scheme’s funds have already been dissipated. This means, while a member may have paperwork showing what their pension investment is worth, it cannot be transferred out if there are no funds and in those limited cases where an individual victim may have recently transferred funds which remain in the scheme bank account, trust law would require these funds to be treated as part of the overall scheme assets, and not earmarked in a way which would allow them to be returned intact to that victim.

It may not be in a member’s best interest to transfer out of the scheme before attempts to recover assets have been allowed to conclude. Savers who leave the scheme early might miss out on the benefit of work to recover stolen funds or attempts to minimise the impact of tax liabilities on those transferring out. Without knowing the final recovery amount, it would be impossible for the IT to make a reasonable judgement about what is in a member’s interest.

The IT could be put in the impossible position of being forced to weigh the benefit of allowing a member to leave a scheme early versus the impact that would have on the schemes’ remaining members.

As such, this recommendation would be very difficult to put into practice. An IT’s investigation is crucial in recovering as much value as possible for victims, but the cost and complexity of the work is high.

TPR welcomes the feedback with the Committee and will continue our hard work with organisations and trustees to help educate the public against pension scams and bring the perpetrators of scams to justice where it is possible to do so.

Yours sincerely

Nicola Parish

Executive Director of Frontline Regulation.