Pension members are increasingly falling victim to pension scams and are losing some or all of their pension savings as a result. In light of that, trustees need to be vigilant in the face of sophisticated scammers who are targeting members to gain access to their pension savings.
A recent ruling of the High Court held that pension scams could in principle be used as a basis for claims to be made on the Fraud Compensation Fund (FCF). This means that members who have been scammed have an alternative route to compensation which may mean they do not claim against their former scheme trustees.
The Pensions Regulator (TPR) has reported that more than £30 million has been lost to pension scammers since 2017 and there is no level at which a scammer will not target, whether large or small savings. One common basis for a scam is for members to transfer to a new scheme which does not protect its assets and allows the fraudster to access the transferred pension funds.
The scams in operation are sophisticated and ever-evolving. TPR has challenged the industry (including trustees) to educate itself about current and emerging scam tactics and adopt best practice when it comes to transfer due diligence. TPR has launched an online training module which outlines the processes it expects trustees and providers to follow to keep members safe. TPR has also asked trustees to sign up to a 6 step pledge to help combat the issue.
Trustees have a vital role to play in beating the people behind scams and protecting members from losing their savings. To do that, trustees need to be able to spot the warning signs when a member is being scammed and then carry out the appropriate due diligence on transfer requests.
Where trustees fail to act appropriately, they may have to pay compensation to the former member or restore them back into the scheme without a transfer back in. This is because the Pensions Ombudsman takes a dim view of trustees who do not adopt stringent measures.
Fraud Compensation Fund
The FCF is a fund managed by the Pension Protection Fund which can make compensation payments to occupational pension schemes where a scheme's assets have been reduced on account of fraud.
TPR is able to appoint an independent trustee to a scheme which has been used as a scam vehicle. That trustee will be able, depending on the circumstances, to make a claim on the FCF for compensation for members who have lost some, or all, of their savings.
That is good news for members who have been the victim of a transfer scam. And it means that trustees subject to complaints from former members can direct members back to the independent trustee for a claim to be made on the FCF.
What can trustees do?
Trustees need to have a better understanding of pension scams and have stringent processes in place to prevent their members falling victim to such scams. Where those procedures are not followed, members could lose their savings and trustees themselves could fall foul of rulings of the Ombudsman.
The Pensions Regulator (TPR) has reported that more than £30 million has been lost to pension scammers since 2017 and there is no level at which a scammer will not target, whether large or small savings. One common basis for a scam is for members to transfer to a new scheme which does not protect its assets and allows the fraudster to access the transferred pension funds.
The scams in operation are sophisticated and ever-evolving. TPR has challenged the industry (including trustees) to educate itself about current and emerging scam tactics and adopt best practice when it comes to transfer due diligence. TPR has launched an online training module which outlines the processes it expects trustees and providers to follow to keep members safe. TPR has also asked trustees to sign up to a 6 step pledge to help combat the issue.
Trustees have a vital role to play in beating the people behind scams and protecting members from losing their savings. To do that, trustees need to be able to spot the warning signs when a member is being scammed and then carry out the appropriate due diligence on transfer requests.
Where trustees fail to act appropriately, they may have to pay compensation to the former member or restore them back into the scheme without a transfer back in. This is because the Pensions Ombudsman takes a dim view of trustees who do not adopt stringent measures.
Fraud Compensation Fund
The FCF is a fund managed by the Pension Protection Fund which can make compensation payments to occupational pension schemes where a scheme's assets have been reduced on account of fraud.
TPR is able to appoint an independent trustee to a scheme which has been used as a scam vehicle. That trustee will be able, depending on the circumstances, to make a claim on the FCF for compensation for members who have lost some, or all, of their savings.
That is good news for members who have been the victim of a transfer scam. And it means that trustees subject to complaints from former members can direct members back to the independent trustee for a claim to be made on the FCF.
What can trustees do?
Trustees need to have a better understanding of pension scams and have stringent processes in place to prevent their members falling victim to such scams. Where those procedures are not followed, members could lose their savings and trustees themselves could fall foul of rulings of the Ombudsman.
Register: Cyber security essentials for Pension Schemes
2 December 2020 | 09:00 - 09:45 (BST)
With a guest speaker from industry, Fieldfisher partners David Gallagher (Pensions) and Leonie Power (Information & Privacy) will look at the new and not-so new cyber security threats to pension schemes. This will include practical experience of how privacy by design is implemented for both employers and trustees taking into account their legal duties and relationship to each other.