Pension liberation scams are an unfortunate blight on the pensions landscape, enticing members into ‘fraudulent’ transfers of their benefits, often putting their retirement plans at risk. On receiving a transfer request from a member, trustees must be alert to the issue of pension liberation fraud and what steps to take to prevent it.

An evolution in tactics used by those operating such liberation scams has led to a fresh publicity campaign from the Pensions Regulator. The decision whether to transfer a member’s benefits from one registered pension scheme to another is ultimately one for the trustees, creating a delicate balancing act between the trustees’ fiduciary duty to act in the best interests of the member and the statutory duty to make the requested transfer within a six-month period. This means that trustees need to be up to speed on the Regulator’s guidance, and alert to the risks that pension liberation offers pose to duped members.

What is pension liberation?

Typically, pension liberation will involve a member of a registered pension scheme being enticed to transfer to a fraudulent scheme in the belief that he will access his benefits before normal pension age. This can lead at best to the member’s benefits being subject to HMRC rules on unauthorised payments and, at worst, the member’s benefits disappearing as a result of fraud.

The Regulator’s warning

The Pensions Regulator, together with the Department for Work and Pensions and others, has begun a new publicity campaign, using stories of victims to raise awareness of pension liberation scams. With an estimated £495million now paid into pension liberation scams, the Regulator has warned against the increasingly sophisticated methods used by fraudsters including the use of spam text messages, unusual overseas investment structures and in-home visits from “introducers”. 

To raise public awareness, the Regulator has requested that all schemes include the Regulator’s warning leaflet in their next annual statement to members and also give the leaflet to members who make a transfer request in the meantime. While this will help to educate members about the dangers of pension liberation, it is ultimately trustees who must decide whether to authorise a transfer request.

Initial warning signs

The Pensions Regulator has not issued a definitive list of points which trustees should look for on receipt of a transfer request. Trustees may wish to consider the likes of the following initial questions when deciding whether or not to make the transfer. This is not a complete list, every transfer request will be different and require its own unique investigation.

  • Is the receiving scheme known to the trustees as an established pension scheme?

If the scheme was previously unknown to the trustees and has become the source of more than one transfer request over a short period of time, further investigation into the receiving scheme should be carried out.

  • Is the member under 55 years old?

From 6 April 2010, the normal minimum pension age (the youngest age at which a member of a registered pension scheme can ordinarily take scheme benefits) is 55. Except in limited circumstances, a pension drawn before age 55 from a registered pension scheme will be an unauthorised payment and the member may be liable for an unauthorised payment charge. Pension liberation fraud sometimes entices victims by a promise to allow them to access their pension benefits before age 55, without explaining the unauthorised charges that will result.

  • Has the member received an unsolicited approach to transfer to the receiving scheme?

Consideration should be given to the nature of the approach and the information supplied to the member. Pension liberation operators have been known to target individuals with poor credit history, using information available in the public domain to target people who may see an advantage in converting their pension account into immediate cash.

  • Is the wording of the correspondence consistent with that from other receiving schemes?

The trustees should investigate further if the correspondence from the receiving scheme uses wording such as “legal loophole” or promises the member benefits which appear inconsistent with pension scheme benefits, for example, offering a loan from the scheme to the member.

  • Is there pressure to transfer the member’s benefits quickly?

Members and trustees should not be rushed into a decision. A request to urgently transfer the member’s benefits to the receiving scheme may be as a result of pressure on the member from the pension liberation fraud operator, concerned about exposure to the authorities.

While a suspicion raised by an answer to any of these questions may not necessarily indicate pension liberation fraud, it will often be prudent for trustees to carry out further investigations as to the legitimacy of the transfer. When considering a transfer request which they believe may be part of a pension liberation scam, trustees should think carefully about whether they should take advice and/or contact the Regulator.

This is a nuanced area and trustees are recommended to take legal advice should they have any doubts about transferring a member’s benefits. In particular, we expect that would-be fraudsters will be aware of the Regulator’s warning signs and will respond by developing new tactics to tempt people to transfer with enticements that go under the radar. What the Regulator’s statements have made clear, however, is that it expects trustees to be vigilant here and not to close their eyes to the risk such fraud poses for scheme members.