TPR update

Pension Scams And Global Heating

Executive Director of Frontline Regulation Nicola Parish updates us on two key issues for The Pensions Regulator.

More power for trustees to stop scammers 

Working with government and other regulators, we are determined to  stop the scourge of pension scammers. As part of this, we recently published new guidance to help trustees understand their new powers to halt suspicious transfers.

New regulations, arising from the Pension Schemes Act 2021, introduce a system of red and amber flags, giving trustees the power to refuse transfers where there's a heightened risk it may be part of a scam.

The new rules, which further empower trustees in their role as the first line of defense against scammers, enshrine in legislation two of the key parts of our pledge to combat pension scams, namely due diligence measures and warning members of high-risk transfers. 

The regulations will require checks to be undertaken before a transfer is made. Transfers can proceed with no further checks to authorised master trusts, authorised collective defined contribution schemes and public service schemes. 

Trustees and providers can also maintain a 'clean list' of personal pension schemes they have reason to believe are not being used for scams. For other transfers, trustees will have to assess evidence of employment links to receiving occupational pension schemes (and residency when overseas). 

Trustees may identify amber flags requiring a member to get guidance from MoneyHelper – provided by MaPS – or red flags which enable the governing body to stop the transfer. 

While most pension transfers are legitimate and can proceed with minimum intervention, the Pension Scams Industry Group (PSIG) estimates 5% of all transfer requests give trustees and scheme managers cause for concern.

We are calling on all trustees and pension providers to take note of the new rules and continue to play their part in stopping scams – including reporting all suspected scams to Action Fraud, or by calling 101 in Scotland.

Adapting to climate change 

A rapidly warming world brings the risk of more frequent fires, floods or extreme weather – potentially causing the loss of physical assets and supply chain disruption.

Unless properly managed, these risks have the potential to impact scheme funding, employer covenant and leave some savers facing a poorer retirement. We recently published a report showing pension schemes in the UK still have more to do if they are to adapt to the challenges of climate change. 

Our climate adaptation report  highlights too few schemes give enough consideration to climate-related risks and opportunities, which means investment performance and saver outcomes could suffer.

The report shows that while schemes are more engaged, less than half of defined contribution schemes (43%) took account of climate change when formulating their investment strategies and approaches when asked in 2020.
A survey of defined benefit schemes in the same year showed more than half (51%) had not allocated time or resources to assessing any financial risks and opportunities associated with climate change.

We are calling on schemes to act now to start incorporating climate related risks and opportunities in their scheme’s investment strategies.  This means allocating sufficient time and resources to asssesing them and ensuring processes used to manage them are robust. 

We want to see trustees embrace the potential for positive impact from considering climate change in investment and scheme governance, including on expected returns and the capacity to reduce risk. For example, there may be opportunities to access new markets and new technologies related to the transition to a low-carbon economy.

As highlighted by the report, we know a lack of climate-related data could be a barrier for schemes adapting to climate change.  According to feedback from our supervision teams, industry has warned that availability of climate-related data can be a significant issue for trustees and this may be a barrier to developing plans to make schemes more resilient.

However, we expect to see improvements in data quality and modelling capabilities as the financial system as a whole moves towards mandatory reporting of climate-related risks and opportunities.

We can’t know now if global efforts will avoid the starkest climate change predictions. But by seizing on the progress, albeit small, seen in our adaptation report, we remain convinced that a landscape of resilient pension schemes, where climate risk is effectively managed and trustees take advantage of opportunities for savers from the move to a net zero economy, is still achievable.