Chair of pension scams inquiry calls for law reform
by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting
Lawmakers are under pressure to close a shocking loophole that prevents the pensions industry from blocking the theft of pensions by transfer fraudsters.
Recent research by Aviva indicates that, while this makes up only about 5% of reported frauds that target savers, the average sum lost to a transfer fraud is a devastating £70,000.
Stephen Timms MP, Chair of the Work and Pensions Select Committee, spoke up in a reading of the Pensions Bill last Wednesday, recounting evidence that he received in the pension scams inquiry, which Transparency Task Force helped to bring about in our campaign earlier this year.
Timms said: “We heard this morning from scheme trustees not only that they had an obligation to transfer even if they knew perfectly well that the destination was a scam but that if they did not do it quickly enough they would be fined for not getting a move on “.
Timms said that the pensions ombudsman had tried to protect consumers in 2015, when it ‘allowed trustees to decline a transfer request when there were concerns about a scam’ but perversely, this due diligence was then apparently strait-jacketed under the law: “The Hughes v. Royal London court case in 2016 overturned that determination That must be changed … It is important that that change is made.”
How the system is failing victims
Timms set out the experience of one of his constituents, ‘Mr R’, who had his pension stolen:
He explained: ‘Mr R complained to the pensions ombudsman about the decision of the London Pensions Fund Authority and Newham Council, which is my local authority, to allow him to transfer his pension to the Gresham pension scheme.
“That transfer went ahead and he has lost his entire pension valued at £64,000. He has been awarded £1,000 in compensation since then. His view now is that the trustees should have refused to make that transfer but, under the 2016 Hughes v. Royal London decision, the trustees are legally obliged to go ahead with the transfer in a case of that kind.
“I think Mr R is right that the transfer that he requested should have been blocked by the trustees, and I very much hope that in future that will be possible. Very few people would today argue that the pension freedoms should be repealed but pension savers are entitled to expect protection. The change that I have described is designed to provide it.”
Timms also welcomed ‘the new offence created by the Bill of “knowingly or recklessly” providing false information to trustees.’
Pension Scams Inquiry takes evidence from Industry
Pension providers fined for trying to protect their clients
Lorraine Harper, Client Relationship Director at Mercer, told MPs on the pension scams inquiry that the law blocks her from outright stopping a victim of a scam from transferring the money: “We are caught between a rock and a hard place. If somebody has a right and we do not have a very clear reason to refuse a transfer, we have to do it … A number of trustee boards who have delayed [a transfer] because of concerns have ended up being fined for doing so.”
The inquiry also heard that clients are being ‘groomed’ with disinformation, often online or on social media platforms. Harper explained: “The people who are going after the members themselves, trying to persuade them to move money, often are making empty promises to them.
“When we tell members, for example, that if they are under 55, they cannot access any money, the adviser will have already told the member that we will say that and that we are lying to them in order to keep hold of their cash. That is the sort of thing we are up against.”
Economic crises – a field day for fraudsters
Rachel Vahey, Senior Technical Consultant at AJ Bell told MPs: “Often, especially when it comes to pension scams, the client may be in dire financial straits and desperately needs this money, which is why they are taking such desperate action.”
“If you are telling them just at the point of transfer or just at the point where you are encashing the fund, “Go get financial help, go get advice or go get guidance”, they may be reluctant to do so because they are not interested in that. They are only interested in getting their money at that particular point.”
What can tech giants do to prevent ‘grooming’?
Julian Adams, Director of Public Policy and Regulation at M&G PLC set out to MPs the appeal of pension freedom: ‘People want to be able to access their money, they have a right to access their money and we have a time period in which we have to provide that money to them.’
However: ‘People can be groomed via social media platforms. They can be given “advice” by fraudsters, “Take your money out. Do whatever you can to get your money out” … then the fraud is perpetrated.’
Consumers who report the fraud to regulators such as Action Fraud and the Financial Conduct Authority can then feel it has ‘disappeared into the ether’, Vahey told MPs: “If we could get better feedback from these organisations, and maybe even a higher profile of people they have prosecuted and where there have been successful prosecutions as well, I think that would be very instrumental and important to raising the profile of pension scams and other finance scams.”
Peter Hazlewood, Aviva’s Group Financial Crime Risk Director, further explained the pressure-points that Aviva is seeing : “We have had people who, for example as a result of lockdown, might have sold their home … We have had people who are clearly in the vulnerable category, highly vulnerable and unsophisticated investors, and we have had some quite sophisticated investors as well”
Calls for scams to be recognised as ‘online harm’
Aviva‘s Peter Hazlewood told MPs that big tech search firms ‘are really acting as enablers to advertise fraudulent investment products’ and that during the pandemic ‘this threat has accelerated.’
“They [consumers] perform a simple web search on a search stream such as ‘best ISA returns’ or ‘best fixed term bond returns’ and they are directed to a fraudulent site that purports itself to be from a household brand.”
“When the dividend or the return does not materialise, inevitably the brand that has been associated with the fraud will receive a phone call from the investor asking about the dividend payment or the coupon payment on the bond, or the return on the ISA. … That is about 95% of the fraud that we are seeing at the moment”
Hazlewood argued that the law needs to be changed to put pressure on tech giants: “We feel that it would be highly beneficial to extend the Online Harms Bill to include the advertising of fraudulent investments, including pension scams.”
‘Real and present danger’ from cloned websites
M&G‘s Julian Adams concurred in his evidence to the inquiry: “The role of the tech companies is important because essentially, they host websites that are fraudulent and also fraudsters can pay to have the hits to go higher and higher up the screen.
“… again, I agree with the comment that was made—we have seen an increase now. … When we went into lockdown,there was a very sharp increase and then it settled down and in September, we have seen a similarly sharp increase. This is something that is a real and present danger now.”
Transparency Task Force writes to new FCA chief
TTF’s founder Andy Agathangelou has written an open letter to Nikhil Rathi inviting him to our Symposium on 15th December titled ‘Are the UK’s Financial Regulators Failing?’
This letter uges the regulator to, among other things:
- Get behind our initiative to bring Violation Tracker to the UK.
- Positively engage with our new #RegulatorsWatch group.
- Make the FCA’s complaints scheme fully compliant with Financial Services Act 2012
- Explore how to make the Financial Services Consumer Panel more effective as we feel it has become rather tokenistic.
- Demand disgorgement of all gains made by malefactors for distribution to affected consumers.
- Establish whether the FCA has a ‘predisposition towards defensiveness’ and ‘publicly reaffirm and make effective your commitment to protect whistleblowers’.
You can read our letter in full below and download it with links, here.
Is the Watchdog taking credit for volunteers’ tip-offs?
Meanwhile the UK’s financial services watchdog, the Financial Conduct Authority, may be over-dependent on unpaid volunteers reporting frauds advertised on search engines, with one of TTF’s members, campaigning accountant Mark Taber, appearing to be the most prolific among them.
If cloned websites are accounting for 95% of investment frauds being found by Aviva, TTF is not alone in thinking that this ought to feature more prominently on the regulator’s radar.
Taber keeps an eye on the FCA’s Warning List and tells us that, based on what is published there, it looks as if the regulator is ‘reactive’ to reports from the public. He says his ‘450 reports so far this year’ account for ‘about half’ the warnings on their list. Of those, “about 95% of warnings relating to bonds, ISA and savings scams are scams I have investigated and reported on a voluntary basis … That the FCA is reliant on an unpaid volunteer for over half its warnings speaks volumes.”
Mark Taber is among experts speaking at TTF’s event this Wednesday: ‘Optimising the Regulatory Approach to Approving Financial Promotions’
FCA reveals boom in ‘unauthorised business’
DWP minister Guy Opperman MP recently wrote to the Financial Conduct Authority asking the watchdog to set out what it is doing in response to various red flags for scams.
The FCA’s Director of Consumer Investments Supervision Debbie Gupta replied: “As investment fraud has moved online in response to changing consumer habits, the number of reports of unauthorised business we have received in the last 3 years has grown by 89%.
“Last year we received over 20,000 reports. This year we are on track to receive well over 24,000. In the first 6 months of this year, we assessed over 11,000 reports and issued more warnings on our Warning List than in the whole of 2019.
“There has also been a proliferation of online scams outside our remit. Importantly, our Warning List is not a one-stop shop central public register of all scams, including all the different facets of pension scams. We do not have the power to publish details on the Warning List about unregulated entities that are not conducting any regulated activity, because they are outside our jurisdiction. Nor do we have the power to publish warnings on behalf of other agencies and regulators.
“Currently, the public and industry have no single website to refer to, where they can find all scams identified by regulators and law enforcement. We think that a central register may help improve consumer protection and disrupt scams. We would be open to discussing with you, other regulators and our law enforcement partners how one might work.”
Press Timeline of relevant articles:
12 Oct 2020 ‘It is time to reboot the competition regime for the modern, digital age’ by David Wighton, The Times
12 Oct 2020 Gina Miller blasts FCA complaints scheme changes ‘unfair, immoral and illegal’ by Cristian Angeloni for Portfolio Adviser
12 Oct 2020 MPs call for input on Pension Schemes Bill by James Phillips for Professional Pensions
10 Oct 2020 Give pension trustees power to fight scammers, say MPs by Kenza Bryan for the Times
08 Oct 2020 Freedom to transfer pensions should be stripped where scams are suspected, industry experts urge by Jessica Beard for the Telegraph
08 Oct 2020 Planned pensions shake-up passes first Commons hurdle by Law 360
08 Oct 2020 WPC chairman says transfer rules ‘must be changed’ by Amy Austin for FT Adviser
07 Oct 2020 Tech giants share blame for pension scams, MPs told by Law 360
06 Oct 2020 FCA opens 85 cases over pension scam concerns by Amy Austin for FT Adviser
11 Sep 2020 – The Hut Group facing fresh questions over governance after it reveals one of country’s best-known private equity barons to oversee pay policy by Lucy White for the Daily Mail
10 Sep 2020 London Capital and Finance investors relieved after court ruling opens route to compensation claims by Ben Chapman for the Independent
08 Sep 2020 – Change in law needed to stop scams, says Timms, by Amy Austin for FT Adviser
24 Aug 2020 – Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times
04 Aug 2020 – Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions
03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money
01 Aug 2020 – ‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph
31 Jul 2020 ‘Common sense’ prevails as pension freedom withdrawals fall 17% — But drop is expected to be ‘a short-term blip’ by Robbie Lawther for International Adviser
31 Jul 2020 – HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser
28 Jul 2020 – MPs launch inquiry into pension scams by Tom Kelly for Daily Mail ; UK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing
24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style
17 Jul 2020 – Year ‘dominated’ by FCA shortcomings as 205 complaints made, by Rachel Mortimer for FT Adviser
29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360
11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser
15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times
20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser
07 Jan 2020 – It’s time to keep your pensions promise, Boris! The PM pledged to help these victims of a huge scam FOUR years ago – and they’re still waiting by Tom Kelly for the Daily Mail.
29 Dec 2019 – ‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, by Tom Kelly for the Daily Mail
15 Aug 2019 – Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail
18 Jun 2019 – “I came home to find my house had been stolen!” by Angela Ellis-Jones for the Daily Mail
20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser