Extracts from second reading debate (Commons) of the Pension Schemes Bill - Oct 7

Stephen Timms (East Ham) (Lab):...However, I want to focus my remarks on the issue of pension scams echoing a number of points that have already been made. As we have heard, the Select Committee has started an inquiry on pension scams which the Secretary of State referred to. That is the first strand of three in an assessment of the pension freedoms five years on from their introduction by George Osborne.

Losing one’s pension savings to a scam is devastating. The Select Committee has heard of lives that have been ruined by scams—of people who have worked hard all their lives and were looking forward, as they were entitled to, to a comfortable retirement, finding suddenly that their savings have all been stolen; husbands not daring to tell their wives what has happened, or of the shame or dread of the future that they are suffering.

We do not know the scale of this issue. Many scams are never reported, partly because people are ashamed of what they have done and partly because they know that the chance of ever retrieving any of the money is slim. There are grave concerns about the effectiveness of Action Fraud in investigating and ensuring the pursuit of scams, given the low rate of success in retrieving scammed pensions.

The pension scams industry group, to which I pay tribute, estimates that scams could account for anything between 0.5% and 12% of all transfers out of employer pension schemes in the last five years. If we take the middle figure—say 5%—that would mean that over the last five years £10 billion of pension savings have been stolen. There are certainly well-informed reports of named individuals living in the lap of luxury in homes in exotic locations around the world on the proceeds of pensions out of which they have defrauded hard-working savers.

I am bound to say that these awful problems should have been foreseen when pension freedoms were introduced five years ago. Indeed, as I remember well, they were foreseen, but the coalition Government did not adequately prepare for them. I do not know why—they should have done, but they did not. Charles Randell, chair of the Financial Conduct Authority, said at the 2020 annual public meeting of the FCA that

“the manner in which the pension freedoms were introduced leaves a number of lessons to be learnt, including about the importance of coordinating changes in government policy with regulatory and industry preparedness and the speed with which major changes are introduced.”

He was absolutely right—those things were not done, and thousands of hard-working people have had their lives ruined as a result.

The pension scams industry group has thought long and hard about this, and the pensions industry has every incentive to worry about the reputational damage that it suffers as a result of the impact of scams. If people cannot trust what will happen with their money they will not save. The industry group has identified red flags to assist in establishing whether the destination for a proposed transfer is likely to be a scam. It has suggested three main flags, any one of which, most people would agree, should mean that the transfer should not go ahead: first, if the receiving scheme is on the FCA warning list or some other internal list of schemes, entities or individuals of concern; secondly, if advice on the proposed transfer has been provided by firms or people who do not have appropriate regulatory permissions; and, thirdly, if the provider or self-invested personal pension operator is not registered with the FCA. The industry group has identified a number of other flags that may not in themselves show that the transfer ought not to go ahead, but do suggest that further checks need to be made before it does.

As I mentioned in my exchange with the Secretary of State, an amendment to the Bill was tabled in the other place to ensure that if a proposed transfer raised red flags it should not go ahead until the saver had taken financial advice. The problem graphically reported by the pension scams industry group is that only about a quarter of would-be scam victims would be deterred from proceeding after receiving advice telling them not to do so. The scammers win people’s confidence—they become their friends, as we heard in the Select Committee this morning. The scammers tell people, “Yes, they will say that, but that is because they do not want you to move your money.” People trust scammers until the moment they find their pension has gone...