Making Sense of Pensions

David Davison

Beware, beware, beware!!

Charities rightly have a reputation for adopting a more paternalistic attitude towards staff than is generally the case, and I’m sure they would be concerned if it was felt that their actions were exposing staff to unnecessary risk. However, the approach taken to retirement benefits could in many cases be inadvertently doing exactly that.

Charity employers make a commitment to help staff fund for their retirement provision throughout their working life. They closely monitor contributions, look to ensure that the scheme they provide offers staff the best choice and benefits possible, and that they have access to information and advice when they need it. However, coming up to and at retirement, just when members have accumulated their largest benefit, and have the most difficult decisions to take about their retirement, and when they are at their most vulnerable to scammers and unscrupulous individuals, is the point at which little, if any, support is available.

I was struck by a recent case highlighted by the Pensions Regulator (the full press release and related notices can be found here) where £16 million was invested, and this was made up of transfers from other, reputable schemes, the value was reduced to approximately £991,000. This is all before any tax penalties are considered in respect of liberation payments. Any return to members is likely to be a tiny fraction of the transfer value they paid in. Assets had disappeared in a myriad of suspect investments and those affected have been consigned to a retirement considerably less comfortable than the one they might have expected.

The statistics are frightening. According to research carried out by Citizens Advice:-

  • 10.9m pensions consumers received unsolicited contact since April 2015;
  • 8.4m consumers were offered unsolicited pension advice/reviews in the last year;
  • Action Fraud – in first six months of Pension Freedoms the average pensioner affected by pension fraud lost £163,000;
  • The average consumer has difficulty in spotting scam offers.

Nobody knows exactly how much has been lost to pensions fraud, but some estimate it could be as high as £3bn.

Recent research published by Retirement Advantage has shown that 35% of savers over 55 years old have been targeted by scammers offering free pension reviews, or investment opportunities.

This is an increase from figures released in June 2015, showing that one in five people over 50 had been approached by would-be scammers. As the people being approached here are over 55, this is not about pension so-called liberation, it’s about separating individuals from their retirement pots.

The Pension Regulator press release outlined classic elements of scam behaviour including:

  • Potential scheme members were cold called and text messaged by introducers, who were paid on commission for the introduction.
  • Without their knowledge, members’ funds were invested in exotic sounding, unregulated investments overseas, such as tree plantations in Fiji, a Brazilian teak plantation land and fund shares based in the Cayman Islands.
  • The scheme appeared to have been a vehicle for pension liberation and that the trustees were aware of this. TPR found that some scheme members (below the age of 55) received cash advances or loans via introducers with, in at least one case, a scheme member receiving a loan directly from the scheme assets.

Never has the old adage “if it seems too good to be true it probably is” been more apt.

So, what should employers be looking to do to protect staff from these unscrupulous individuals?

People need to be made aware of the risks and what to look out for. Snake oil salesmen promising guaranteed returns and buy now while stocks last investments are unlikely to be genuine. The illusion of high growth with the promise of low risk in a time of low inflation and interest rates is unachievable.

A good start as a minimum would be to supply all staff with a copy of the Pension Regulator’s Guide on what individuals should be on the look out for. Charities could supply this to staff via e-mail or letter, or it could be included as part of an annual update. Additionally employers could ensure that any staff presentations from your pension provider / independent financial adviser on pensions include some warnings about scams. It is also certainly well worth considering having access to an independent financial adviser available for staff, as they reach retirement age.

In addition, we need to stop the scammers getting hold of the money and, if you can’t stop people giving it away, you need to save people from themselves. All hail the Nanny State!

In August the Department for Work and Pensions (DWP) / HM Treasury published “Pension Scams: consultation response.”

The response suggests:-

  • a ban on cold calling in relation to pensions, to help stop fraudsters contacting individuals;
  • limiting the statutory right to transfer to some occupational pension schemes;
  • making it harder for fraudsters to open pension schemes.

This is excellent news, however, it is nothing more than a statement of intent at this stage and will remain so, until legislation in enacted. In this regard, rather worryingly, in the consultation response it does say that “the government will bring forward legislation when Parliamentary time allows.” Given the parliamentary timetable is currently congested with Brexit issues, I have a concern that many more people will be exposed to risk before this legislation is enacted, making remedial action in the interim all the more pressing.

Hopefully the simple steps I’ve suggested here will keep more people out of the clutches of the scammers, and have their pension savings protected to provide for the safe and comfortable retirement they were always intended for.

David Davison

As Frank Field, Chair of the Parliamentary Work & Pensions Committee, writes to the Trustees of USS, the Pension Regulator and ministers about the record deficit position the Scheme now finds itself in, I wanted to consider if the Scheme is a victim of circumstance or are there any lessons to be learned. Read more »

Hugh Nolan

Politics and Pensions

The world is a very uncertain place at the moment and strangely that might mean a period of relative stability for UK pension regulations. The main reason for optimism about such stability is simply that Parliament will have to focus so heavily on Brexit issues that there will be no time for another Pensions Act any time soon. The second reason is that there doesn’t seem to be any real appetite for any major change, despite the loud shouting from various parties on many, many sides. Read more »

Hugh Nolan

The Government recently announced that the State Pension Age will increase to 68 in 2037 – seven years earlier then planned. This may seem odd given current news about longevity improvements slowing down but it actually makes perfect sense.

The first State Pension in the UK was introduced in 1908 and paid the 25% of people who reached age 70 for an average of 9 years. The Basic State Pension came in from 1948 and allowed people to retire at 65, with a life expectancy of 12 years. But, by 2014 this had risen to 21 years (for men) so it’s no wonder that something had to give. Read more »

Gino Rocco

The Supreme Court has provided some welcome clarification on how a person’s rights or interests in a pension arrangement should be treated as matrimonial property in divorce cases.


The facts of the case are that Mr McDonald, who was the respondent in the case, was a member of the British Coal Staff Superannuation Scheme (the “Scheme”).

Mrs McDonald sought a pension sharing order from the Scottish Courts on her divorce from Mr McDonald, on the basis that his pension forms part of the matrimonial property which is taken into account in the financial settlement. Read more »

David Davison

In an earlier bulletin, I looked at why the current basis of cessation for admitted bodies in LGPS was causing problems and how the inconsistency of approaches taken by Funds meant that organisations struggled to understand their obligations and what steps were open to them to address the issues they face.  You can read the bulletin entitled ‘An alternative approach to cessation’ here.

In some work undertaken over the last few months I’ve identified that some Funding Strategy Statements (‘FSS’) revised over the last couple of years seem to suggest that some Funds are taking tentative steps to try to address the situation. Read more »

Andrew Kerrin

On this summer lunchtime in July, as blue skies backdrop the birds flying by the Spence office windows, and tourists bustle by on the streets below, I’ve found myself looking for inspiration for an introduction for this quarter’s pension update. Yet, I needn’t have looked far. Classic lyrics from The Byrds, that have been stuck in my head for a few days now, might just do the trick. Read more »

Andrew Kerrin

“If Mr Walker was married to a woman, or, indeed, if he married a woman in the future, she would be entitled on his death to the pension provided by the scheme to a surviving spouse.  When the claim was issued, the value of that “spouse’s pension” was about £45,700 per annum.  As things stand at present, Mr Walker’s husband will be entitled to a pension of about £1,000 per annum (the statutory guaranteed minimum).”

This is how the Supreme Court judgement described the situation in which Mr Walker found himself, in relation to his membership of Innospec’s DB scheme.  How did this happen?  Ironically it was the anti discrimination provision in the Equal Treatment Framework Directive, coupled with scheme rules, that allowed this disparity to occur in respect of same sex survivors’ pensions. Read more »

David Davison

I’m often asked to explain why contractors have finished up with a substantial bill payable to an LGPS at the end of an out-sourced contract. I’ve therefore compiled this very simplistic worked example to highlight the issues contractors face. The figures are for representative purposes only and are not intended to be either detailed or LGPS liability specific. Read more »

Angela Burns

The period for responding to the Financial Conduct Authority’s (“FCA”) consultation on pension redress has ended with replies having to be submitted by 10 June 2017.  The FCA is expected to issue a response in Autumn 2017.

So how did we respond….what did Spence think was the correct way to calculate pension redress payments? Read more »

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