Pensions fraud

Urgent points first

(1) Nominative determinism is back. Money Marketing on 2 July 2020 published an important article entitled ‘The Morning Briefing: Pension tax pain and networks’. It was written by their reporter Justin Cash. Of course it was.

(2) Richard Curtis, author of Comic Relief and Love Actually is backing a new campaigning organisation to encourage pension schemes to behave ethically. It’s at https://makemymoneymatter.co.uk/. His timing is, as ever, impeccable. The Pension Schemes Bill 2020, Clause 124 (on climate change and pension schemes) is going through Parliament just now, and it follows (feel free to skip this list)

(1) The Paris Agreement (2016)

(2) European Commission High Level Expert Group on Sustainable Finance (2016)

(3) Law Commission, Pension Funds and Social Investment (2017)

(4) TCFD Final Recommendations (2017)

(5) EAC Green Finance inquiry (2018)

(6) EU, Action Plan for Financing Sustainable Growth (2018

(7) Occupational Pension Schemes (Governance) (Amendment) Regulations 2018

(8) TPR Code of Practice on ESG factors (forthcoming)

(9) Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019

(10) TPR, DC Investment Guide (2019)

(11) UK Gov, Green Finance Strategy (2019)

(12) TPR, DB Investment Guidance (2019)

(13) UN PRI Policy Response

(14) UK Stewardship Code (2019)

(15) Shareaction, Review of Mastertrust ESG policies (2019) and

(16) UKSIF Report on scheme compliance with SIP regulations,

all of which also direct pension funds on climate change and ESG issues. Richard Curtis probably hasn’t had time to read all this (who has?) but once he goes back to his day job it would be great if he could find time to write Love Actually 2, this time with all of us in the pensions sphere as the loved-up heroes. There’ll be a scramble by a few of us for Hugh Grant’s part, this time with a more important screen role than as Prime Minister, ie as Pensions Minister.

Fraud and saving money

Lockdown has revealed hidden gems including all those old, usually monochrome, films on Talking Pictures TV (Channel 306 on Freesat, 81 on Freeview). Many of the films of the 1950s and 1960s involve police who are well-dressed, polite, not aggressive to people of ethnic and other minorities, and have satisfying private lives. Crime was mostly stealing jewels or breaking into banks. Maigret smoked a pipe, unthinkable today, and Gideon of the Yard, smoked a cigarette, drank a bottle of beer, and then drove to the office, also unthinkable today. The only time Commander Gideon lost his cool was when he got a parking ticket, the equivalent of a TPR fine for misspelling a charman’s statement, trivial but an irritant nonetheless.

Being a policeman then was (relatively) easy. Everyone knew who were the villains and who were the good guys (mostly aged aunts). Now of course it’s a little more complicated. Since phone calls were expensive in those days, crime did not involve twice-daily appeals from people pretending to be Amazon and asking for your bank account details. And although there were frequent mentions of pensions (see eg Offbeat, 1961, with Mai Zetterling and William Sylvester, DVD at 1.25 and 2.50) the main worry for a police officer was dying in service before he could draw it, not having it stolen. Pension fraud was astonishingly rare.

Now things are different. The Work and Pensions Select Committee has announced it is investigating what the authorities are doing about pensions fraud, so it might be time to look at what if anything the modern police can do about it. Cold calling to defraud our friend Mrs Trellis of North Wales has been of course illegal (since January 2019) but where calls are made from Spain, there’s not much that can be done about it – and even if the calls are made in England, you have to catch the bad guys to make an impression.

Pensions fraud now robs innocent people of hundreds of millions every year. It is much more harmful that anything improper done by trustees or employers or advisers, and yet regulatory effort is concentrated on chairmen’s statements and filling and filing annual returns. Project Bloom, a dining club for the FCA, TPR, SFO and NCA exchanges intelligence, which is good, but so far has had little practical impact apart from pay for the odd amusing TV advert – partly because no one agency is primarily responsible (https://www.youtube.com/watch?v=NeFvYtCaykI).

All these agencies spend a lot of our money. And produce many documents. The FCA has just published (yet another) guide to pension transfers (as though pensions misselling had never taken place thirty years ago) and TPR has designed a pensions scams leaflet. The overheads of these organisations are material. FCA spends (not just on pensions of course) around ￡600M a year (it is up 5% this year), just having spent ￡60M on its IT system. On pensions alone, TPR now manages around 1000 times more regulation than 40 years ago – and its budget is up by 10 times in 15 years (The Pensions Regulator, Corporate Plan 2020-21, 29 June 2020). The spend (which does not include the consequent spend by sponsors and trustees of about 20 times that) is not reflected in improved member outcomes, witness the incessant failures, the fines, and the occasional ritual disembowelment of lay trustees.

These costs are paid ultimately by the end-user. All this at a time when plan sponsors and the government are struggling to manage their day-to-day expenses. Commercial rents are not currently being paid, even by major corporates (question: is it better to pay rent to landlords or contributions to schemes?), at a time when regulators have increased their own budgets and imposed additional obligations on sponsors and trustees – all without any independent evidence of improved member outcomes. Stephen Timms, the present Chairman of the Work and Pensions Select Committee (and a former (twice) minister of pensions in January 1999 and November 2005) and a man who knows about pensions has sensibly determined to begin an inquiry into pensions fraud, rather than on procedural failures by schemes.

What might he conclude? First he could recommend cutting the costs of regulation and save sponsors real money. TPR budget is now ￡100M pa; if it were cut back to say ￡10M (the original budget) it would save the country around ￡1B a year. It could concentrate on the real issues for scheme members. And then Mr Timms could also encourage TPR to assign its prosecution work to professionals; many police now know how to use a computer. As Adam Smith explained many years ago we all benefit by specialising; and of course Gideon of the Yard never lost a case.