The Work and Pensions Committee (WPC) has recently published its report into pension scams. I had a special interest in reading this as I gave evidence to the committee on what AJ Bell’s experience had been.
What strikes you most when reading it is the accounts from the victims themselves; how they were scammed, how they have struggled reporting it to the right people, and the sometimes lack of action to catch and punish the perpetrators.
There is no doubt more needs to be done in this area to protect people, and this report sets about to understand the issues more and includes recommendations where improvements can be made.
This is an excellent report – wide-ranging and detailed. There are four areas I think are worthy of a closer look.
- We need a central body of responsibility
The report concluded there are a multitude of overlapping enforcement bodies involved in stopping scams, but possibly this is making it easier for scammers to squeeze through the cracks. Project Bloom, a multi-agency taskforce, was set up in 2012 to tackle pension fraud but suffers from a lack of central direction.
The WPC recommends replacing Project Bloom with a central body called The Pension Scams Centre which will have a statutory remit, dedicated funding, and the staffing to manage pension scams intelligence alongside law enforcement. Whilst I agree with this proposal, I would widen this out to a Financial Scams Centre reflecting that most of the fraud now occurs outside of pensions. This would help ensure interventions are targeted where the most significant problems lie
2. We need to sort out the online promotion of scams
Social media is pushing online pensions and financial scams onto the unwary, but it seems there is little regulators can do to stop them. A ban on pensions cold-calling was introduced in January 2019 but this could be improved if it was extended to include social media, emails and text – the way many communications are sent nowadays.
The WPC calls out tech firms accepting payment to advertise scams and then further payment from regulators to warn against such scams, saying the practice is immoral. To create parity between traditional media, such as TV and newspapers, and new media, including search engines and social networks, it recommends paid-for-advertising on online platforms should be covered by the regulatory framework for financial promotions. This seems a sensible way forward.
The government has said it will bring forward legislation this year for the Online Safety Bill, but its current scope excludes financial harms. The WPC recommends the forthcoming Bill should also legislate against online investment fraud.
3. We need the restriction of an individual’s statutory right of transfer to work in the best way
The Pension Schemes Act 2021 includes the ability for trustees and scheme administrators to restrict someone’s statutory right to transfer if red or amber flags are raised. Reading the report, it’s obvious this is needed, with evidence that some schemes were powerless to stop transfers from going ahead, despite having concerns.
Secondary legislation will set what these red and amber flags are, but this must be designed in a practical way. Most transfers are to known safe schemes. Mess this up and we will end up with a new system that only adds unnecessary hurdles and delays to legitimate transfers and fails to stop the undesirables. The worst of both worlds
4. We need advice and guidance to work in the best way
Many scammers exploit victims’ confusion between regulated advice and guidance. Often the ‘recommendation’ to transfer comes from an unregulated introducer and the individual has not had financial advice even though they think they have.
The report explores if guidance can play a bigger part in helping people, and the WPC recommends the DWP sets out a plan for increasing the number of PensionWise appointments. How and when the nudge to guidance comes is significant. If someone is set on a plan it’s difficult to get them to accept guidance that it’s not the best decision. Especially if the scammer is whispering in their ear that it’s totally OK. The WPC also recommends the DWP should consider options for the Money and Pensions Service (MaPS) to offer enhanced guidance or limited advice, and this is going to be explored further in the WPC’s current inquiry into how people access their pension.
Finally, the WPC recommends changing the pensions advice allowance by increasing the overall allowance of £1,500 and removing the £500 a year limit.
The WPC report is a detailed look at scams and its recommendations are – mostly – sensible. It widens out the emphasis from ‘pension transfer’ scams, which are thankfully in the descendancy, to a wider definition of financial scams.
Stopping scammers will always be challenging as they adapt rapidly to the evolving environment. Cut off one route and they will find another. Anybody tasked with stopping them needs to be as nimble as they are.
Rachel Vahey is senior technical consultant at AJ Bell