The government has opened a consultation on tackling pension scams.
The consultation looks at a number of areas such as a ban on cold calling and limiting the right to take a transfer. One proposal is to amend the requirements for small self-administered pensions schemes (SSASs) to minimise their use by fraudsters. This may have implications for legitimate SSASs.
The government is worried that SSASs are open to abuse as vehicles for pension scams. Single-member schemes are a particular source of concern because:
- there is no requirement to register with the Pensions Regulator
- they can be HMRC registered, opening the door to a recognised transfer
- the scheme employer can be a dormant company
- the only person party to all decisions is the person being scammed
- following A-Day, there is no requirement for a professional trustee.
The Pensions Regulator believes that SSASs are being marketed as giving unrealistic returns but will instead leave the beneficiaries at risk of tax charges and extortionate fees from the fraudster.
Despite previous reforms, such as moving away from automatic acceptance of an application to register, the government would like to improve the protections in place.
At this stage, the government is only seeking views on whether additional steps should be taken to prevent SSASs being used as vehicles for pension scams through increased regulation or further restrictions.
The government is also proposing to prevent the registration of pension schemes for dormant companies. This would affect all occupational schemes but will also be relevant to SSAS practitioners who specialise in providing services for small businesses.
There are legitimate reasons for a company to be dormant but the government feels that there are few reasons why a dormant company will want to register a new pension scheme if there is no on-going trading activity. The government is seeking views on whether all new scheme registrations must be made through an active company. If not, respondents are asked to discuss the legitimate circumstances in which a dormant company might want to register a new scheme.
The government believes it is unlikely that many (if any) legitimate schemes are being established by dormant companies but if any are then trustees and providers will need to ensure they make these circumstances known.
SSAS providers may also face increased regulation and restrictions with an obvious effect on expenses and administration. Changes to systems and processes may be needed to ensure that these remain compliant.
Increased emphasis on preventing pension scams will also mean that trustees are placed under more pressure to carry out more detailed due diligence on investments and to ensure that members asking to transfer their benefits are aware of the dangers of scams and what the warning signs are.
It is easy to speculate where changes could be made. A system of professional trusteeship similar to pensioneer trustees with co-signatory and co-ownership requirements may not be too controversial. Also, industry may be happy to accept a permitted investment list similar to that which applied to self-invested personal pensions before A Day.
More difficult would be the restriction of self-investment, perhaps allowing pension schemes to invest only in standard assets. This would undermine the business model of SSAS providers.
Alternatively the government could choose to push the use of a master trust structure albeit with self-investment. This will improve governance but raises the question of cross-contamination of investment risks between employers' sections.
The consultation is due to close 13 February 2017. Trustees and providers should keep an eye on developments and may want to reply to the consultation.