This blog is about a discussion in parliament about cleaning up a legacy of pension scams and a discussion in the popular press about how legislation designed to stop those scams is leading to popular discontent.
This morning, we continue our inquiry into Norton pension schemes and the Fraud Compensation Fund.
Watch live:https://t.co/0aMa2Rhx2e https://t.co/fO1ahGVIw6
— Work & Pensions Committee (@CommonsWorkPen) March 20, 2024
The two hour long debate into the handling of the Norton Pension Schemes fraud is a sorry watch. It shows how despite having the intelligence that something was seriously wrong in 2013, it took ten years to prove dishonesty was involved , by which time the perpetrator in chief walked away from a pension scam with a suspended sentence.
If the Work and Pensions Committee felt the same way as I did – while watching on Parliamentary TV, then I don’t think any of the parties giving evidence are going to feel too good about its eventual report.
Clearly things have improved but they always do.
We discover how to close the door on liberation scams, the scammers move on.
We discover how to close the door on investment frauds, the scammers move on.
I was more worried that those giving evidence were so adamant that it was the 2021 pension transfer rules, introduced by the DWP, that had turned the tide.
I am with Margaret Snowden and PSIG in calling for the rules to be “reworked” because, for the little help they have given TPR and the Fraud Compensation Fund, they have caused considerable damage to the retirement planning of those legitimately trying to organise their retirement affairs
Snowden and her PSIG’s position on this is very clear
The 2021 regulations were intended to stop transfers which ceding schemes were concerned about but in their wisdom, DWP wrote the regulations in too prescriptive a way, which we warned them in advance would cause problems . The regulations are being updated, but taking an age but they will make it very clear that any destination a scheme has no concerns about should be made quickly without barriers.
You can hear Margaret Snowden and I discussing this at the Pension PlayPen coffee morning next Tuesday (free link to cut and paste here)
The High Price we pay to protect ourselves
As the Work and Pensions Committee were discussing this matter, a story was breaking on this very subject. It came onto my newsfeed thanks to Citywire
But the readership of the financial press is dwarfed by the national press.
Here is what the Sun told its millions of readers
“We can reveal thousands of potentially low-risk pension transfers were put on hold last year as a result of legislation introduced in 2021 to help prevent scams.
This has left savers facing long delays when trying to move their retirement funds.
A pension transfer is where you move one of your pensions to another provider, or merge pension pots together.
The new rules introduced in 2021 required pension schemes to raise an “amber flag” if they had concerns about a pension transfer, such as that a saver may be moving money into scam investments or paying excessive fees.
Responding to a freedom of information (FOI) request sent by The Sun, the government-backed Money and Pensions Service revealed 16,482 pension transfers were referred to it after being blocked by “amber flags” in the year to January 31 2024.
But industry experts say the rules have been interpreted too literally, resulting in thousands of legitimate transfers being blocked.
Indeed, the top reason for transfers being halted by amber flags last year was “unknown”, our FOI showed. This means no specific reason was given for the delay.
The next most common reason for halting transfers was because of the presence of “overseas investments” in the new pension scheme, which the vast majority of pension funds are likely to contain, according to experts.
And the number of transfers being blocked has hugely increased over the last few years – particularly for unknown reasons.
In 2022, an FOI by financial firm Quilter found the most common reason transfers were blocked by amber flags at the time was due to overseas investments, but this affected just 134 transfers over a three-month period.
Our FOI found almost 16,500 transfers were blocked due to “amber flags” last year
The DWP has been engaging with the pensions industry around how its rules are working since they were introduced.
But it is understood that serious conversations about redrafting them began last year, possibly because the situation has worsened over time.
Insiders say the DWP is now preparing to re-word its rules – or may have already started – and is seeking parliamentary time to push the necessary changes through, although an exact time frame is not yet confirmed.
Rebecca O’Connor, director of public affairs at PensionBee, said:
“Since the DWP brought in its anti-scam legislation, there have been more hold ups of legitimate transfers. But it’s also important we have a functioning marketplace where savers can trust their switching experience won’t be frustrated by avoidable delays.”
A pension transfer usually takes 2-4 weeks, according to Hargreaves Lansdown, but an amber flag can add an additional six weeks due to having to book an appointment with the Money and Pensions Service, the DWP said last year.
A spokesperson for the DWP said:
“Our landmark transfer rules are helping protect people from fraudsters and are estimated to have prevented around 2,000 fraudulent transfers.
“We have always said these must strike the right balance between providing the necessary protection for pension savers against scams, while ensuring they still have freedom and choice about where their savings are invested.
“Work to consider if they could be improved, without undermining the policy intent, is ongoing.”