Pensions And Regulatory Experts Outline Key Issues Which Have Led To Worrying Trend

Specialist pensions and financial regulation lawyers have backed the Government’s ongoing efforts to tackle the rising threat of pensions scams, which are believed to be leading many retirement savers to lose thousands of pounds of their savings.

The Department for Work and Pensions has joined forces with a range of bodies including The Pensions Regulator, the Financial Conduct Authority, HMRC and the Serious Fraud Office to examine the issue, with official estimates suggesting as much as £1 billion may have been ‘scammed’ from savers.

According to the Government, since the launch of Project Bloom a range of action has been taken on the issue, including police raids the closing down of scam websites and the National Crime Agency taking control of key domain names.

The Pensions Regulator has also now refreshed its own Scorpion campaign on the issue in an effort to further safeguard savers and trustees.

Specialist pensions and financial regulation lawyers at Irwin Mitchell have welcomed the latest developments, adding that the issue has emerged following a number of significant developments in pensions rules in recent years.

Expert Opinion

“Strict rules govern the offer of financial products including pensions, but the same rules do not apply to workplace pensions plans offered by an employer to its staff and usually run by trustees.

“In the past legislation restricted those who could be offered an employer pension plan to staff and directors of that employer. However as part of a process of so called tax simplification HMRC removed that requirement. All of a sudden members of the public could be invited to transfer their pension rights to a ‘workplace’ pension plan relating to an employer who they had no previous connection to. Often the ‘employer’ would be sham companies established ‘off the shelf’.

“Many pension members have recently been offered the right to encash pension rights, but this does not apply to all – with pension savers with public sector pensions and those under 55 being ineligible.
With this in mind, pensions scamming or pensions liberation offered a way for savers to get a cash sum against the value of the pension pot they transferred.

“In cases of outright fraud those transferring rights lose their money and get nothing in return, but in some other cases money – described as a loan - can be forthcoming. Alternatively, the funds transferred are invested in such diverse assets as environmentally friendly timber, green biofuels, small and start-up businesses.” Martin Jenkins - Partner

Martin added that it is important to remember not all liberation vehicles are scams and many savers, especially following the credit crunch, happily traded pensions rights for ready cash.

Expert Opinion

“In many cases the pension being given up was small and to be paid at some far off point. Equally many small businesses starved of funds from high street banks were glad to accept investment from a pension fund and expect to pay a market rate of interest.

“Those who seek to unlock pension rights early are typically subject to tax at penal rates often swallowing some or all of their pensions savings. But the rules on this are confused and unclear. If I get a payment described as a loan from the company that manages my pension have I broken tax rules? If so a number of mainstream retail products would fall foul including pension mortgages offered by many large insurance firms and banks.

“Those seeking to transfer pension pots have a legal right to do so. Accordingly those managing pensions felt constrained to allow a transfer even if the ‘pension fund’ receiving the transfer looked ‘dubious’. HMRC are now combatting this by now vetting new registered pension funds and checking on those already registered which appear ‘unusual’ or suspicious.” Martin Jenkins - Partner

Martin added that the Government’s approach to the issue has occasionally been viewed as disproportionate.

Expert Opinion

“This is particularly in the case of those schemes which did appear to be trying to invest the funds received as promised, albeit often quite ineptly. Imposing professional trustees, lawyers and accountants all paid from the fund in question often meant much or all of a member’s money disappears in professional fees.

“We would suggest that a much more measured approach should be used to ensure that the best possible outcome is achieved for those nearing retirement.” Martin Jenkins - Partner

Sarah Wallace, a Partner and regulatory investigations expert at Irwin Mitchell, added there was a ‘sinister’ aspect to some forms of pension unlocking.