Written evidence from the Pension Scams Industry Group (PSIG) (NPS0016)
Norton pension schemes and the Fraud Compensation Fund
Evidence submitted to the Work and Pensions Committee Inquiry by the Pension Scams Industry Group (PSIG)
This submission follows discussion with Djuna Thurley, Senior Specialist to the Committee and the sharing of a report jointly prepared by the Chair of PSIG and the Chair of the Advisory Board to the Investment Fraud APPG.
PSIG: We believe the TPR has sufficient powers to act, but to do so, it needs to have sufficient oversight to identify problems early enough to prevent irrecoverable losses. Our experience is that regulatory interventions take a long time, partly because of difficulty in spotting errant behaviour and also due to an abundance of caution, ie trying to be overly sure of a situation before acting. This is admirable in many situations but in dealing with risk to member benefits, a regulator must act swiftly and be prepared to get it wrong. We see caution in pension scam cases where action against perpetrators can take years. We also believe that inadequate or misdirected resourcing means that a form of triage is inevitable to gauge which cases to act on and pursue. This is a difficult balance to achieve.
a) Are the right regulatory arrangements to prevent a similar case happening again;
PSIG: We believe the regulations are in place, but there needs to be a culture of rapid action when trustee wrongdoing is flagged or suspected. The regulator appears to focus on large schemes where a single failure would have a huge impact, but gives less attention to smaller ones and rely on self reporting and whistleblowing.
PSIG: TPR has the power to replace a trustee and does so from time to time. Unfortunately, there are few trustees with the necessary skills to deal with complex fiduciary failures. We believe it is also a mistake that trustee fees take such primacy in cases where assets are lost. We also believe that the time taken to investigate, track assets and manage a problematic scheme should be limited. An open-ended appointment removes urgency in managing a troubled scheme to wind up and we would suggest that an independent trustee should be appointed for a period of three years only, with a duty to explain where an extension is required. This would help bring closure to scheme members who can suffer prolonged harm through delays.
PSIG: When a scheme collapses due to fraud or mismanagement, it is essential that the various parties and stakeholders work together in the best interest of scheme members. For example, if the Pensions Ombudsman finds a breach of trust or dishonesty in his investigation, his findings should be immediately accepted by TPR and PPF. TPR’s duty to protect the PPF conflicts with the duty to protect scheme member benefits.
PSIG: Our response to Question 2 is relevant here. We have seen examples of members not being informed because of the cost and because communications generate questions which add further to that cost. Failure to maintain regular communications causes further suffering to members, who tend to be in an anxious state already. We would suggest that in cases where wrongdoing is suspected that early access to external funding (perhaps by an advance from the Fraud Compensation Fund, or similar) would avoid the penny-pinching on member communications. As above, speedy resolution and wind up would itself limit the volume of prolonged communication.
PSIG: There needs to be an early assessment of the likelihood of fraud or dishonesty involved in a collapse or a scam. Additionally, the bar should not be set unrealistically high and should not differ according to whichever agency applies. There should be a clear process with standards set out and sufficient skills and resources to deliver relief. Scheme member welfare should be front of mind within PPF/FCF and TPR.
PSIG: We believe there are a number of cases where dishonesty by fiduciaries has resulted in losses that have not yet come to light. For example, we are aware of a recent increase in pension liberation cases, largely because such cases can take years to be spotted. We are also aware of and have supported one particular case that was denied access to the FCF because TPR had removed the trustee for breaches but had not appointed a replacement. The rules of eligibility for compensation require a trustee as well as a sponsoring employer. We expect there are other similar cases out there. We must however mention that we have been very impressed with the attitude and commitment of the whole FCF team in their endeavours to deal with recent fraud cases, and especially with their work to find an imaginative solution for the scheme denied justice because of the lack of a trustee and employer mentioned above. We hope that regulators and government departments will cooperate to allow victims to recover lost savings.
Other PSIG observations
We would like to draw the Committee’s attention to some other related issues.
a) FCF is structured to compensate a scheme for losses through dishonesty. The process for claiming is complicated and an active trustee is required to accept any compensation and distribute it to members as appropriate. A sponsoring employer is also required to declare insolvency prior to a claim. In certain cases (as above), dishonest trustees have been struck off by TPR and not replaced where there are no assets left to pay a new trustee. The scheme members are left in limbo, unable to act for themselves. It is often the case too that the sponsoring employer has voluntarily dissolved and is permitted to do so by Companies House, thereby creating another barrier to a future claim, especially where a claim is delayed for a period of years. TPR should therefore consider fraud compensation implications when striking off an errant trustee. Companies House should also do more to establish the circumstances behind a dissolution request.
b) Where there has been dishonesty, there are often unauthorised payments involved, whether to members or by schemes. HMRC levies significant tax charges and/or sanctions in both circumstances. There is a serious disconnect in that FCF could award compensation for fraud losses, then some of that compensation will be taken by HMRC in tax, unless the tax liability is covered by the compensation claim, which would be absurd.
c) We would remind the committee that in 2006 HMRC changed its scheme registration process to an online application with limited or no checks. This permitted well over a hundred bogus schemes to be established with a veneer of respectability. While HMRC reminds us that consumers should not rely on the registered status of schemes, we contend that ordinary people did assume that registered schemes were safe, much to their cost when they turned out to be scams. HMRC acknowledged the weakness of the registration process by reintroducing checks for new applications in 2013 as well as retrospective checks resulting in many schemes being deregistered, although much too late to prevent considerable consumer harm.
d) Authorities in the UK seem reluctant to pursue perpetrators of fraud and scams. The chances of prosecution are low as are the chances of recovering lost assets. This is a disservice to victims as well as a loss to the economy.
Margaret Snowdon OBE
Chair of the Pension Scams Industry Group
10 April 2024
About the Pension Scams Industry Group (PSIG)
PSIG is the voluntary body set up to support trustees, providers, and administrators in combating
pension scams. It was set up in 2014, and in March 2015, published the first Code of Good Practice on Combating Pension Scams. This is the definitive guide to scams prevention and has been recognised by the Minister for Pensions, the Pensions Regulator and the Pensions Ombudsman as well as the industry itself.
The group is made up of experts and industry organisations who wish to help prevent scams. We also run a regular forum, where members share intelligence on suspicious activities observed. This intelligence is shared with the FCA and TPR. We have called for changes to legislation to make pension scamming more difficult and to give discretion to HMRC on penalties levied on victims.
We have been included in the multi-agency Pension Scams Action Group, chaired by TPR and deliver non-legislative elements of the Strategic Action Plan.
PSIG is unfunded and relies on the goodwill of its volunteers. We have published four versions of the Code to keep it up to date and will soon commence work on the fifth. We plan to seek industry support and funding to continue our work and to introduce an accreditation scheme, whereby schemes that can confirm that they follow the principles of the PSIG Code will be awarded a kite mark to show that a high standard of care will apply to reassure members and discourage scammers and fraudsters.
PSIG has been working for some time calling for changes to tax law and HMRC practices in cases of dishonesty by a third party, but without success. We have joined forces with the Investment Fraud and Fair Financial Services APPG to call for an Inquiry into this and other fraud and victim related matters.
April 2024