Pension transfer scam crackdown risks delaying thousands of transfers
The government tabled proposals to tackle pension scheme fraud today, but it could risk blocking or delaying thousands of legitimate transfers, AJ Bell’s chief executive has warned.
The plans outlined by the Department for Work and Pensions (DWP) could push providers to ask people transferring to a pension scheme not on the government-approved ‘safe destination’ list a series of questions to determine whether they are at risk of being scammed.
“Tackling financial fraud is one of the most significant challenges facing the industry today and we have campaigned tirelessly for vital reforms, including the pensions cold-calling ban,” the chief executive of AJ Bell, Andy Bell, said.
“However, it is crucial in designing any protections for savers that the cure is not worse than the disease.
“Unfortunately, that is a real risk with the DWP’s proposed reforms.”
While most pension transfers are the real deal, the Pension Scams Industry Group estimates 5 per cent of transfer requests give trustees and scheme managers cause for concern.
Many scammers have begun using social media and other online platforms to offer people unrealistic incentives, such as free pension reviews, early access to their money, or time-limited offers, the government said.
“Pension scammers are the lowest of the low, and with the growth in recent years of online scams we must act now to curb them,” pensions minister Guy Opperman said.
“Our new regulations will build a strong first line of defence in the fight against pension fraud – helping stop these crooks from making off with people’s hard-earned savings.”
The proposal is set to exclude all Self Invested Person Pension’s (SIPPs) and personal pensions not operated by insurance firms from the safe destination list.
“Having a government-defined ‘safe destination’ list will give consumers the impression that those schemes are impervious to scams. That is not the case and ironically might make them a target for scammers,” Bell continued.
This may lead to unwarranted delays for transfers to these schemes. Meanwhile, lawful transfers to mainstream pension providers could be blocked completely if customers fail to answer the stipulated questions.
“If providers take a blanket approach and ask these questions of all transfers to schemes not on the safe destination list, pension transfers could be pushed back into the dark ages,” the investment chief warned.
The ‘safe destination’ list could lead customers astray as it implies the DWP will ensure each scheme on the list is legitimate.
“Classifying insured pension schemes as a safe destination, whilst excluding platform pensions is arbitrary. The thinking that all insured schemes are inherently safe shows the government has forgotten the Equitable Life scandal,” Bell added.