19th May 2016
The Government has missed an opportunity to crack down on vehicles widely used by scammers to facilitate pensions fraud, investment platform AJ Bell says.
The Government revealed plans in the Queen’s speech to provide “better protections” for savers in master trusts – the multi-employer schemes looking after the savings of millions of people as a result of automatic enrolment.
However, the summary of what will be included in the Bill makes no mention of Small Self-Administered Schemes (SSASs), a legitimate type of pension plan that is often abused by pension scammers.
AJ Bell head of technical resources Gareth James says: “It would be bizarre for the Government to legislate based on the fear master trusts could be used by scammers, without doing the same for SSASs when they already are being used by scammers.
“SSASs remain a valuable type of pension scheme but for a number of years pension fraudsters have been setting them up to scam savers. Until policymakers and regulators get a grip on this market, vulnerable savers will continue to be robbed of their life savings by opportunistic scammers.
“The Government should reintroduce the requirement for all SSASs to have an independent trustee looking out for the welfare of scheme members. This would be a kick in the teeth to pension fraudsters and introduce a valuable extra line of defence in the war against scammers.
“In addition, it would be a missed opportunity not to use the Pensions Bill to strengthen the laws governing pension transfers so schemes have the power to resist them where there is a clear risk of harm to the saver.
The firm says scammers can use SSAS-like pension schemes as a vehicle for fraud and AJ Bell has seen a 140% increase in the volume of transfer requests to SSASs that have raised a red flag in its due diligence process.
Prior to 2006 all SSASs had to have a professional trustee, referred to as a ‘pensioner trustee’. They were independent and recognised by HMRC as having the knowledge required to run SSASs.
A High Court ruling in the case of Donna-Marie Hughes and Royal London is likely to further encourage pension fraudsters to use SSASs as the vehicle for their scams. The ruling confirmed that it is not necessary for a person who wishes to transfer their pension to an occupational scheme to have earnings from the employer linked to the scheme. It also confirmed that the scheme employer does not have to be trading.
Prior to the ruling, the Pensions Ombudsman had determined that it was necessary for an individual to have earnings in relation to the scheme’s employer in order to have a statutory right to transfer.
The Court’s ruling, combined with the increase in SSASs being used for pension scams make now the time for the regulator to reinstate the requirement for SSASs to have professional trustees in order to protect pension savers.