Martin Lewis outlines pension scheme for 16-21 year olds
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Pension scams are proving to be a real issue for UK retirees, with Action Fraud recently reporting that savers have lost £1.8million in fraud in the first three months of 2021. The Government has taken steps to address this and yesterday, the DWP set out new rule proposals to “help curb online pension scams”.
Under the new plans, suspicious requests (specifically transfers) could be stopped if pension savers have been approached to access or transfer their savings uninvited via social media.
Such unsolicited contact would trigger a “red flag” which would mean pension trustees or scheme managers can block it.
The DWP warned: “Pension scammers are the lowest of the low, and with the growth in recent years of online scams we must act now to curb them.
“Our new regulations will build a strong, first line of defence in the fight against pension fraud – helping stop these crooks from making off with people’s hard-earned savings.”
The DWP has launched a consultation on the new draft legislation and it will be open to responses until June 9.
Specifically, the four conditions within the consultation are:
- To confirm the transfer is to one of a number of types of receiving schemes which present a low scams risk, by virtue of the requirements of those schemes; if that is the case the transfer proceeds without any further checks or requirements for members to provide further evidence or information to the trustee or scheme manager. This includes public sector schemes, master trusts and personal pensions run by insurers.
- If the transfer is not to one of those listed types of scheme, members can exercise their statutory right to transfer on the condition that certain prescribed evidence is provided. Trustees need to confirm the member has demonstrated an employment link between themselves and the occupational pension scheme they wish to transfer to. If they wish to transfer to a QROPS and they can’t demonstrate an employment link, they will be required to demonstrate residency in the same financial jurisdiction as that of the scheme to which they wish to transfer. Where these employment and residency conditions are met, the transfer proceeds.
- If neither I nor II apply, then the trustees or scheme managers must decide if any of the prescribed circumstances that would prevent a transfer are present. We refer to these as ‘red flags’. Should any of these be present, the transfer may not proceed. If the red flags are not present, the trustees or scheme managers must decide whether any of the circumstances where the member must be referred to specified scams guidance apply. If these are present, the transfer may only proceed once the member provides evidence of having taken the guidance. We refer to these as ‘amber flags’. Where they decide the flags are not present, the transfer proceeds.
- The trustees or scheme managers are not required to seek information from the member to identify whether the red or amber flags are present but have the power to do so if needed. They may be able to decide that the red and amber flags are not present without the need for additional checks or activity to that which they already undertake as part of their current processes.
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Andrew Tully, a technical director at Canada Life, responded to these points.
He said: “Pension scams are a scourge of society and it has been well documented how big the problem is.
“Behind the numbers are very personal stories and every one of them is saddening to hear about.
“So it makes sense to introduce further measures to protect people from scams.
“However, these ideas focus on the under 55 age group pre pension freedoms.
“There are only a few scams which affect transfers before age 55, as most people know there are only very limited circumstances where you can access your money legally pre 55.
“Scammers instead target customers who are age 55 plus when people can legitimately access their funds and these measures will unfortunately do nothing to prevent that.
“The old adage still applies, buyer beware and if it looks too good to be true, it inevitably is. Simply walk away, delete the email or hang up if you are contacted out of the blue.
“We also have to be careful that any measures introduced don’t cause undue delays in people being able to transfer their pension benefits from one scheme to another.
“The industry has worked hard to get transfer turnaround times down and it wouldn’t be good if any new measures caused that to go into reverse.”
Measures of this kind may be needed more than ever as a recent study from Freetrade discovered worrying levels of financial illiteracy.
Freetrade asked 2,000 British people to complete a test on their finances and the results showed 48 percent could not answer basic questions about personal finance including what an ISA stands for, the difference between fixed rates and variable rates, and what an annuity provider does when one retires.
Retirement was the area of personal finance that people struggled to understand the most, with 80 percent of British people unable to correctly answer this part of the test. This figure was 81 percent among respondents aged 55+ approaching retirement age.
Dan Lane, a senior analyst at Freetrade, commented on these results: “There should be alarm bells ringing about the fact that 90 percent of Brits lack confidence with their pensions. With advances in medical technology and increased life expectancies we’re likely to live longer in retirement than ever before. But a massive gap in our understanding of how to invest for our third age, or even how to access those investments suitably later on, means we really aren’t prepared for a sizable portion of our lives. Unless we’re thinking about investing for retirement long before we get there, we could end up in the awful position of regretting the simple financial decisions we made 30 years ago.”
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