The £20bn scheme has warned its members about potentially illegal early-release offers in order to manage the risk of fraud and tax costs to their retirement savings
The £20bn pension scheme has informed its members about these scams – where companies offer to allow them access to tax-free funds before retirement.
Protecting members against fraud
Trustees should remain alert to the risk of fraudulent activity and inform scheme members about such activities, say advisers.
Particular attention could be paid to any scheme that offers to unlock pension benefits, especially if under the state retirement age.
Useful numbers: the FSA consumer helpline (0845 606 1234); HMRC’s Pensions Anti-Fraud Unit (0115 974 2147); Pensions Regulator (0845 600 0707).
The list of authorised financial services companies can be found online on the FSA's register.
Jonathan Clark, head of communication at RPMI, which administrates the scheme, said: "We aim to keep people informed of what is happening both within the scheme and the industry as a whole."
To avoid possible risks and raise members' awareness, RPMI has issued newsletters for the active members of the scheme, deferred members and pensioners.
In its bi-annual newsletter, the scheme outlined the risk of fraud to members. It also provided contact telephone numbers of the FSA consumer helpline, HMRC's Pensions Anti-Fraud Unit and the Pensions Regulator.
It has advised members to read a longer version of the article on the scheme's website. This is accompanied by an example of the risks of transferring into such arrangements.
"When we believe there are issues out there we feel a duty to inform members, even if these issues are not present within their own scheme," said Clark.
Schemes that inform members about the potential fraud and tax costs of disreputable early-release offers can help protect their retirement income.
Spike in early-released funds
Pension unlocking allows members aged 50 or above to release their pension benefits from an occupational or personal pension.
If the offer is too good it probably is a scam
Katherine Dandy, Sackers
The problem comes when members are tricked into getting a release – or liberation – of their pension fund without realising they could be liable for big tax charges on these unauthorised payments as a result of accessing the pension fund illegally.
Over the past year there has been a dramatic spike in the amount of known early-released funds. According to estimates from the Pensions Regulator the value of these funds rose from under £25m in 2010 to nearly £200m by the end of 2011.
Victoria Holmes, case team leader at the regulator, said the sophistication of the internet has meant marketing for these sorts of arrangements has become easier and web pages often have the appearance of legitimacy.
It is crucial that scheme members remain alert to the risk of fraudulent activity, she added. Risk monitoring and communications can help trustees minimise this risk.
"An effective governance framework is the best safeguard against such practices," she said.
Trustees are expected to report any significant incidents to the regulator and inform members of any significant losses of assets.
"Trustees, managers and advisers are subject to a statutory duty to whistle-blow serious failings in a pension scheme," said Holmes.
Spotting fraud
Katherine Dandy, head of dispute resolution at Sackers, said that while some offers were fraudulent others were completely legitimate.
Scheme trustees have an important role to play because they sign off any unauthorised payments
James Walsh, NAPF
She said: "The true scams are when members are charged with very high arrangement fees to access the scheme in the first place. If the offer is too good it probably is a scam."
The National Association of Pension Funds became a victim of a different kind of fraud earlier this month.
A letter entitled NAPF Investment Conference was sent to members, asking them to confirm details and fax the information back. But the letter was sent by a company that aimed to charge for listings in a publication, not from the pensions body.
"This relies on people not reading the letter properly and signing to confirm their details are correct," the NAPF informed members. "We'll obviously be pursuing the company."
James Walsh, senior policy adviser at the NAPF, said fraud was increasing in the pensions industry and schemes should take careful note of the regulators' warnings and be vigilant about those risks.
He added: "Scheme trustees have an important role to play because they sign off any unauthorised payments."
