In guidance released last week, The Pensions Regulator ("TPR") has alerted trustees of an increase in pension transfer scams. Market volatility has a profound effect on investment values, and accordingly, pensions. Sadly, it appears that opportunistic fraudsters are capitalising on peoples' heightened anxiety due to COVID-19.
Risks of transferring
Recent scams have involved individuals being enticed by fraudsters to transfer their pension savings from their existing scheme, with the (false) promise of higher returns. This is merely a ploy designed to encourage people to part with their savings. Whilst there may be legitimate reasons for transferring out in certain circumstances, members must be warned of the potential consequences. In particular, members of eligible defined benefit ("DB") schemes would lose Pension Protection Fund ("PPF") protection if they transfer out.
What must trustees do to decrease the risk of their members falling victim?
TPR identifies trustees as the "first line of defence" in preventing scams. It states that trustees must be alert to the risks and support members to make an informed decision.
Trustees must send a template letter (accessible here) which has been prepared jointly by TPR, the Financial Conduct Authority ("FCA") and the Pension Advisory Service, to any of their members that request a cash equivalent transfer value ("CETV"). It contains important information on points members should consider before making a decision, and where they should go for impartial guidance.
The FCA is keen to monitor CETV request activity, so trustees must keep a record and report any unusual or concerning patterns. In addition to sending the template letter in response to CETV requests, trustees should make efforts to bringsources of free and impartial advice available (such as Pension Wise) to the attention of their members, encouraging them to obtain professional advice in relation to their retirement financial planning. Trustees must consider how they will identify any risk in relation to members accessing their pension funds; and ensure that they flag it to the relevant member.
Regulatory easement in relation to CETV requests
TPR previously acknowledged that trustees of DB schemes may wish to temporarily halt CETV quotes and payments as a result of the current climate. In response, TPR has provided a regulatory easement (until 30 June 2020, when it will be reviewed) that will allow trustees to suspend CETV quotations and payment for three months (with the possibility of further extension) without being penalised for breaching disclosure requirements. This will provide trustees with additional time to review CETV terms and to manage increased demand for CETV quotations.
The team will continue to blog as regulatory guidance and the COVID-19 impact on pension schemes develops.
If you would like to discuss anything raised in this blog, please get in touch with your usual contact at Brodies.
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