Introducing an authorised list for pension transfers would act as a crucial defence for savers in the fight against fraudsters, argues Tracy Weller, board director at the Pensions Administration Standards Association.
Action points
Make members aware of scams in all literature (joining, annual statement, transferring, retirement)
Ask members why they want to transfer, and communicate safe decumulation options
Educate members and encourage the use of the single financial guidance body
Pension scamming models have become more and more investment-based, with fraudsters targeting their victims using a combination of high-pressure sales tactics, misleading descriptions of investment risk and promises of guaranteed returns.
Trustees must be on the front foot in their continued efforts to educate members and remain vigilant around pension transfer requests
Given the recent surge in transfer activity – the Pensions Regulator estimates that transfer values of £14.3bn were paid out of defined benefit schemes over the year to March 31 2018 – the value of savings ‘up for grabs’ is only on the rise.
Scamming loopholes
Beyond pension freedoms, favourable conditions for successful scams have risen incrementally over the past 10 years or so, enabling scammers to manipulate loopholes and establish fraudulent arrangements under legitimate means.
In 2006, HM Revenue & Customs’ switch from ‘discretionary approval’ to ‘process now and check later’ registration meant scammers could form a scheme without any due diligence or appropriate authorisation. This loophole was not closed until 2014, when HMRC introduced compulsory checks to ensure scheme administrators were ‘fit and proper’.
Other loopholes, however, remain open; small self-administered schemes no longer require a pensioneer trustee and the regulator has still not enforced the registration of one-member occupational pension schemes.
Public awareness
Project Bloom – the cross-government taskforce led by the pensions watchdog – has been proactive in its efforts to raise public awareness of the threat of scams. In recent weeks, ScamSmart, a joint TV campaign, was launched by the regulator and the Financial Conduct Authority with the slogan: “Don’t let a scammer enjoy your retirement.”
The campaign warns savers to be wary of any promise of high returns for low-risk schemes and to resist being pressured into making a quick investment decision, but the need for direct intervention to curb this proliferating threat is clear.
Recent data from Action Fraud put some context around the scale of the UK’s pension scamming problem: 253 people reported to be victims of pension scams in 2017, suffering an average loss of £91,000 – an aggregate £23m – but there is a general suspicion that this downplays the full extent of the issue, as it is likely that many cases continue to go unreported.
Zero tolerance on cold-calling
Cold-calling with the promise of a free pensions review remains the most common approach used to coax savers into signing up for fraudulent investment opportunities.
The Money Advice Service has estimated there could be as many as eight scam calls every second in the UK – the equivalent of 250m calls a year – while Citizens Advice has calculated that 10.9m consumers have received unsolicited contact about their pension since April 2015.
The scale of the issue demands a zero-tolerance approach; a total ban on cold-calling will make it much more difficult for perpetrators to contact their targets and lure them into irreversible decisions.
While it is encouraging to see the government formalising its plans to legislate a ban on cold calls with its recent consultation, this move is long overdue. At the Pensions Administration Standards Association, we firmly believe the introduction of an authorised list for pension transfers would act as a crucial defence for savers in the fight against fraudsters.
Ongoing vigilance
Ensuring that both the public and pension administrators can identify and avoid scams must remain a priority for all industry stakeholders, but particularly trustees.
Documents like the Pensions Regulator’s scheme transfer checklist, which outlines some typical indicators of a scam, questions to ask and recommended actions, as well as the Pension Scams Industry Group’s Code of Good Practice on Pension Scams, are both crucial reference points.
Another way to reduce the risk of scamming is by designing appropriate in-house decumulation pathways. The recent formation of a single financial guidance body was also an important step towards simplifying the complex pensions terrain for savers.
Trustees must be on the front foot in their continued efforts to educate members and remain vigilant around pension transfer requests.
Tracy Weller is board director at Pasa and group director of business operations at B&CE
