An industry-wide Code of Good Practice on combating pension scams has been launched this week. The Code is the latest salvo in the long-running war against so-called pension liberation arrangements, a campaign which has involved High Court cases, Pensions Ombudsman determinations, changes to the law and Pensions Regulator and HMRC activity. At the same time, the Regulator has taken the opportunity to update its existing pension scams materials to acknowledge the new Code and the perceived increased risk of scams from 6 April.
The core principles
The Code aims to provide industry standard due diligence to follow when considering requests by members for transfers between registered pension schemes. In doing so, there are three core underlying principles. These are that trustees, providers and administrators should:
- raise awareness of pension scams for members and beneficiaries;
- have robust, but proportionate, processes for assessing whether a receiving scheme may be part of a pension scam, and for responding to that risk;
- be generally aware of the current strategies of perpetrators of pension scams, in order to inform the due diligence they need to undertake, and refer to the warning flags indicated in relevant regulatory materials.
Scope and status of the Code
In terms of scope, the Code is comprehensive. It sets out the relevant regulatory background and expands on the detail on the core principles set out above. The Code includes standard information which a transferring scheme may require, guidance on reasonable steps to minimise delays, a set of example letters and discharge form wording for trustees, and steps for reporting suspicious cases.
It is important to note that the Code is voluntary. It does not have any statutory status, nor does it replace the law or other guidance around the topic of pension scams. Indeed, as this is a rapidly developing area of law the Code notes that in many cases trustees, providers and administrators will need to obtain independent legal advice on how to deal with suspicious transfer requests. The Code is stated to apply straightaway, i.e. to all transfer requests processed on or after 16 March 2015, even where the request for a transfer has already been received.
With renewed concern about pension scams arising from the new flexibility to take DC pension pots as cash from April, the release of the Code is timely. As the Code acknowledges, “with pension freedom comes the risk of poor choice and the risk that scammers will target people with access to those freedoms”. For its part the Regulator warns that: “People approaching 55 may be contacted by scammers seeking to exploit people’s interest in the change in law, for example by enticing them to move their cash into bogus, unregulated investments or other forms of scams.” It believes that pension scams will continue to evolve in the light of the new flexibilities available.
Many schemes are already reviewing transfer communications in anticipation of the pending DC reforms. However, the issue of the Code delivers renewed impetus for trustees to examine their wider procedures in this difficult area. Given that the Code takes immediate effect, they may wish to do so sooner rather than later.
The Code can be found here.
The Regulator’s updated guidance can be found here.