A group of industry experts has found that the advice sector will find it hard to combat pension scams due to lack of data available to identify the scale of the problem.
The Pensions Policy Institute (PPI), published a policy paper on 19 May, said the insufficient information around the subject will make it difficult to “effectively protect savers”.
This comes after the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) released research in 2019 showing that over five million people across the UK could be at risk of falling for a scam.
Broad and complex
The PPI said: “Pension scams remain a significant threat to savings, with new channels of contact and types of scam evolving in the wake of regulatory action to protect savers.
“Pension scams are increasingly focused on investment scams, which can be particularly hard to combat as the money has been withdrawn from the regulatory landscape of pensions.
“The area of pension scams is broad and complex.
“Further research considering issues around the lack of comprehensive data and clarity on the types of scams that are taking place in the post-flexibilities landscape could shed light on the best way to protect savers from scams.”
The think tank also said that data available about the number of scams taking place, as well as the sum lost in each scam, does not “offer a comprehensive view of the true scale of the issue”.
There are two factors that particularly impact scams data:
- It is believed that only a minority of pension scams are actually reported; and
- Data is not collected in a comparable and easily-aggregated way across the industry.
Whack-a-mole
In a bid to combat pension scams, the UK government banned cold calling in January 2019.
Companies that make unwanted, unsolicited phone calls to people about their pensions may face enforcement action, including fines of up to £500,000 ($612,000, €559,000).
But the PPI said that scam artists are becoming creative in how they deceive victims.
Ian Browne, retirement expert at Quilter, said: “The government’s decision to outlaw pension cold-calling sent a clear message to pension savers; if you receive a call out of the blue about your pension, hang up.
“But it has resulted in scammers moving online to target vulnerable people through internet searches, social media and email.
“Although, the authorities take steps to intervene where a scam is identified, they are engaged in a perpetual game of whack-a-mole.
“When they deter cold-call scam tactics, the same fraudsters pop-up online. This is a particular worry for younger savers, who may have been less susceptible to telephone-based scams, but are used to transacting online and may be lured into scams on the web or social media.”
Types of scams
Also in the report, the PPI said that investment scams “have become much more prevalent in the post-pension freedoms landscape”.
Perpetrators of these scams may offer investment opportunities that don’t actually exist or real ones but rather than investing the victim’s money, the scammers take it for themselves.
Scammers also pretend to be representatives of a legitimate investment group, in order to encourage trust from victims.
In other cases, they may actually invest the victim’s money, but the “value of the underlying asset is severely eroded by an unnecessarily complex structure of high charges and hidden costs”, known as ‘fractional scamming’ or ‘skimming’.
Transfers
The think tank also said that the rise of defined benefit (DB) transfers since the introduction of pension flexibilities has potentially put “more savers at risk of pension scams”.
Investment scams include both transfers to pension arrangements that invest inappropriately, as well as flexible access to cash from defined contribution (DC) pension pots in order to invest outside of the pensions sector.
The former is considered a pension scam specifically, meaning that schemes and regulators have powers to intervene, however because the latter occurs outside of the pensions industry, “intervention is beyond industry and regulator remit”, the PPI said.
Since the introduction of pension flexibilities, scams are now more likely to involve investment schemes, self-invested personal pensions (Sipps), small self-administered schemes (SSAS) and qualifying recognised overseas pension schemes (Qrops).
Awareness
As the scam artists become more creative in their cons, savers need to be given more help and awareness is the key to fight this issue.
Andrew Tully, technical director at Canada Life, told International Adviser that he believes that “consumer guidance”, with collaboration between providers, industry and government will help fight the number of scams taking place.
“The basic message is if it is too good to be true it probably is and the other big one is time pressure.
“If it doesn’t sound quite right, just take a bit of time. Think about it. Maybe do some research or talk to someone.
“Just some of those basic messages coming out from as many different places as possible will help.”
IA recently reported that AgeWage, Smart Pension and Nutmeg worked alongside PensionBee and technology partner Jman Group to create a five-minute online game to educate consumers on pension scams.
