DWP’s ‘unsafe list’ won’t stop scammers, but it will create a charter for insurance firms to protect the status quo.
New research by Citizens Advice this week showed that more than two thirds of adults (36 million) have been targeted by a scammer since January alone.
The Department of Work and Pensions consultation, which closed last week, on Empowering Trustees and Protecting Members is welcome and important.
The consultation seeks to protect pension scheme members by limiting their statutory right to transfer, in circumstances where there is an apparent risk that the receiving scheme might be a scam.
While supporting the aims and giving suggestions to help providers weed out scammers more effectively, interactive investor, the UK’s second largest DIY investment platform, has concerns.
In particular, the proposal to make an ‘exception’ for schemes that are PRA-authorised insurers (or have a PRA-authorised insurer within their group) will in effect create a publicly available ‘Safe List’. But in doing so, more significantly, it will also create a potentially ‘Unsafe List’ – including some of Britain’s biggest and best-known investment platforms.
Richard Wilson, CEO, interactive investor, says: “Protecting people from scams is a battle that all pension providers fight and that interactive investor takes very seriously, with thorough checks in place that can and do prevent scams occurring.
“But these DWP proposals won’t stop scammers – they will instead create the illusion that Britain’s biggest and best-known investment platforms are less ‘safe’ than equivalent schemes that happen to have PRA-authorisation or simply have a PRA-authorised insurer within their group.
“These proposals feel dangerously close to being a charter for insurance companies to protect the status quo, including their opaque structures and charging. Creating a set of rules for one (investment platforms) and not the other (insurance companies) perpetuates the myth that it is insurance companies that pension investors should trust above all else.
“This could have significant downstream implications for consumers, whereby they are put off transferring to schemes that better suit their needs and offer better value for money.”
Becky O’Connor, Head of Pensions and Savings, interactive investor, adds: “The vast majority of pension transfers are initiated for the right reasons and are not the subject of scam attempts.
“However, people can lose their life savings through pension scams so there is a need for greater protection. And a transfer out of an existing pension scheme may be a point where a scam gets picked up so it makes sense to scrutinise transfers.
“Nevertheless, with a heavy-handed approach, there is a risk of damage to competition in the pensions industry. This could lead to consumer detriment, for example if people are unable to switch to a legitimate alternative pension scheme, such as an interactive investor Sipp, to benefit from lower charges and greater choice of investments. And transfers, which already take a number of weeks, may slow down or in some cases stop altogether.
“We welcome the consultation as an opportunity to get the right checks in place to prevent harm, but without frustrating the vast majority of those wishing to move their pensions.”
Well-established due diligence practices in place – but they lack legal empowerment
Interactive investor believes that with the Pensions Scams Industry Group’s (PSIG) Code of Good Practice, the pensions industry already has well-established and broadly standardised due diligence practices. However, what is missing is the legal empowerment of ceding schemes to prevent transfers where their own due diligence indicates the risk of a scam.
The ’absolute’ nature of, in particular, the ‘amber flags’ will hinder ceding schemes’ ability to apply both common sense and the industry ‘intelligence’ which has been developed through informal information-sharing over several years, and has proved an invaluable tool in the fight to prevent members from being scammed.
DWP must clarify that, where a ceding scheme is satisfied that a receiving scheme presents no risk of a scam, it does not have to (re)perform the due diligence on each occasion that a transfer is initiated and can, in effect, establish an internal ‘safe list’ for those receiving schemes to which it regularly transfers pension plans.
Interactive investor also argues that the Money and Pensions Service (MaPS) must establish an online application whereby ceding schemes can independently validate the reference number provided by the scheme member. Any other approach runs the risk of sophisticated scammers either providing a ‘dummy’ reference, once they have established the format and/or sequencing of such references or providing doctored copies of MaPS correspondence.
Alternatively, MaPS could correspond directly with ceding schemes, from a verifiable email address.
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