Current estimates are that as many as one in eight transfers out of pension schemes turn out to be ‘pension scams’.
To tackle this problem, in June 2018, the Regulator reissued its 2015 Code of Good Practice for combating pension scams. In the Code the Regulator sets out a due diligence process that all trustees should implement in relation to members transferring out of their schemes.
The full Code of Good Practice can be found
here and a summary of this process is set out below.
Generally, trustees should ensure they have appropriate governance processes in place to determine the risk of a pension scam and decide whether a transfer should proceed. Many of the steps outlined in the Code of Good Practice will be carried out already by scheme administrators, but trustees should check the position, and put in place procedures to ensure that their scheme administrators are complying with the Code.
As a basic step, the Regulator expects that all pensions transfer packs should include pension scams awareness material. Even if the transfer park is not sent to a member directly, the pensions scams awareness material should still be sent to the member’s home address. This should include a copy of the Regulator’s
latest pension scams awareness material.
At the beginning of a member’s transfer request, the trustees should collect basic information about the member requesting the transfer and the receiving scheme. Following this, the trustees should conduct an initial ‘risk triage’ to determine the level of risk. Where this triage identifies that there is a level of risk, then the trustees should consider whether to delay or refuse the transfer to seek further evidence, or conduct a due diligence analysis. Depending on the outcomes of this analysis the trustees might need to seek answers from the member in question by telephoning them directly.
If, after completing all of the above, the trustees are still unable to rule out the risk of a pension scam, they should query the status of the receiving scheme with Her Majesty's Revenue and Customs (HMRC). Following this, further due diligence will be required. For example, checking if the pension trustees is insured, and if it is whether the insurer is regulated by the FCA. The Code sets out thorough guidance of what trustees should be looking for in relation to different kind of schemes and what kind of questions they should ask.
The trustees should then decide, based on the information received during the whole due diligence process, whether they should proceed with the transfer. They should be prepared to explain why the transfer is not being made to the member if needed. A refusal to transfer will also require the trustees to report the trustees and administrator to Action Fraud and Regulator. In the event that a member is insistent on a transfer, but the trustees still have a level of concern about the legitimacy of the trustees after conducting due diligence, then the trustees should seek a comprehensive discharge from the member.
Published: October 2018
Pensions Law Update - October 2018
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