Pension fraud and the need to remain vigilant

The threat of pension fraud continues to be very real and pension scheme members, administrators and trustees should all remain vigilant given the potential for serious financial losses and the possibility of a major impact on health and personal circumstances.

The pensions authorities continue to issue warnings and highlight the safeguards in place to help prevent fraud. In its November regulatory round-up, the Pensions Regulator (TPR) flagged up that the National Fraud Intelligence Bureau – run by the City of London police force and funded by government – had revealed that there were 35 reports of pension fraud made each month.

The regulator took the opportunity to urge trustees and administrators to spot, discuss and report incidents so that the industry could continue to be more effective in defending pension savers against scams.

It said: “While scams continue to evolve, reporting remains the best defence against scamming and serves as vital intelligence for us to understand and effectively respond to threats.”

Pensions Ombudsman

Indirect support for administrators and trustees in the fight against fraud came recently from The Pensions Ombudsman (PO).

The PO ruled it would not uphold a complaint against a trustee that there had been an unnecessary delay in a pension transfer request after determining that an amber flag was present in the request because the receiving scheme included the availability of overseas investment.

The PO said the trustee did not act unreasonably in initially determining that the amber flag was therefore present because of the overseas investment element and then subsequently going on to refer the transfer request to MoneyHelper for a safeguarding appointment.

In its ruling the PO said: “The specific concern here is not whether the investment is in, for example, a global equity fund but whether the investment is in assets or funds where there is a lax, or non-existent, regulatory environment or in jurisdictions which allow opaque corporate structures.”

It concluded that it made “no adverse finding in respect of the trustee’s performance of its duties”.

In MHM’s Opinion

At MHM, we have consistently highlighted the necessity of being able to spot and tackle possible pension scams.

We feel there are several points to be made about the ruling by the PO which are highly relevant in the bigger picture of the pensions industry.

The first is that it was ruled that the trustee was clearly ensuring it did the right thing during the processing of this transfer request. Although the presence of the availability of overseas investment in a scheme has been open to different interpretations, the trustee’s interpretation was made for the right reasons.

Time and again, we have said that having the right processes in place underpinned by a culture of strong governance is essential for trustees who will have to deal with all manner of pension management issues from time to time.

A second point, which will give a degree of reassurance to pension scheme administrators, is that the PO was supportive of the trustee’s actions and that the ombudsman believed the trustee was following the correct processes and procedures.

We do however add a cautionary point. We noted that the ombudsman’s ruling said that the pension transfer regulations – the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 – were intended to protect savers against pension scams when making a transfer from one pension scheme to another.

All well and good, but the ruling did say that the approach of the pensions industry on how to implement the transfer regulations had been “fragmented” with different views on how to apply them and it quoted legal commentary that legislation in respect of the overseas investments amber flag was broader than intended.

We think that until the whole matter of amber flags is properly tested or a clearer ruling is made on the presence of overseas investment and how much of a risk it represents, then there will be no certainty over whether it is an appropriate decision in any transfer request. Given the global nature of pensions these days, we wait with interest.

But to end on the positive, we feel it is also worth noting that the PO has a large workload, handing down 17 decisions on pensions issues in November alone. It could therefore be argued that the whole issue and outcome indicates a pensions industry that is healthy and active with a membership that is well-informed and therefore questioning.

At MHM, as we have often said, we believe there is no room for complacency when it comes to tackling fraud. As far as we are concerned the PO ruling highlights the bigger picture of the need to have robust governance that is not only in place but that also works.

If you would like to discuss any concerns or questions that you may have about your own pension scheme, do not hesitate to get in touch.

For further information, contact Steve Button on 01423 229029 or by email to steve.button@mhmtrustees.co.uk.