The Pensions Regulator (TPR) has unveiled a scam-fighting plan aimed to protect savers as increases in the cost of living may leave them more vulnerable to fraudsters.
The strategy consists of three areas:
- Educating pension trustees and savers on the threat of scams;
- Preventing practices which can harm savers’ retirement outcomes; and
- Fighting fraud through the prevention, disruption and punishment of criminals.
TPR warns that savers may be lured by offers to access their pension savings early to cover essential household bills or be attracted by fake investments offering high returns that never materialise.
Nicola Parish, TPR’s executive director of frontline regulation, said: “Our new scams combat plan sets out to make savers aware of the risk of scams, encourage schemes to adopt higher standards of protection for savers’ pots and secure the intelligence we need to work with others to pursue and punish criminals.
“But this task is not ours alone. We expect industry to lead the way in thinking of innovative ways to protect savers now and in the future.”
The plan will complement the work of Project Bloom, the multi-agency taskforce created in 2012 to tackle pension scams, which is to be renamed as the Pension Scams Action Group.
Industry improvements
The regulator is hoping the industry can through a number of initiatives tackle the key issues that face pension scams.
TPR said that it wants industry to improve saver engagement with their pensions and be proactive in their pension scam warnings. It added that schemes, providers, and advisers can and should do more to make pensions work well for consumers.
It also wants industry to do more to prevent practices which lead to saver harm. This means improving their standards or consolidating and leaving the market.
The regulator added that industry must do more to improve on the lack of data around scams as it hampers law enforcement efforts and means the understanding of how savers are being targeted is difficult to determine and pursuit of criminals is much more challenging.
TPR’s outcomes it seeks to deliver are:
- All savers are made aware of the risk of scams;
- The vast majority of savers are in schemes which provide gold-standard, pledge-compliant scam protections;
- Schemes report potential fraud activity to authorities; and
- Create a hostile environment for those seeking to defraud savers using improved data.
Pension scams explained
As part of the strategy, the regulator said it is keen to distinguish between:
- Pension fraud, such as investment fraud, where there are potential criminal sanctions, and
- Practices which lead to saver harm, such as high fees, which we or others can mitigate through use of a regulatory toolkit.
The watchdog added: “We have made this distinction because savers will often view the loss of some, or all of their pension as a ’scam‘ irrespective of whether a fraud was committed or not, but our approach or sanctions which tackle the issue may be very different. We are primarily, but not solely concerned with seven kinds of pension scams, which often can be seen in combination with one another.”
The seven types of pension scams are:
- Investment fraud – those who misrepresent high-risk or false investments to savers;
- Pension liberation – where scammers mislead savers into accessing their pension pots under the age of 55, unaware that they will incur a tax charge or potentially engage in tax evasion;
- Scam pension schemes and providers – schemes and providers set up to deceive victims, which either don’t exist or exist but are committing fraud;
- Clone firms – scam schemes and providers that are disguised as legitimate entities;
- Claims management companies – such as cold-callers who claim savers have been mis-sold a pension and then ask for an advance fee to begin a claims process;
- Employer related investment (ERI) – breach of ERI restrictions when employers divert employees’ pension payments to invest inappropriately in their business leading to losses to savers; and
- High fees – excessive fees often layered through unnecessarily complex business structures.
TPR said that related to these seven are recovery room scams. This is where fraudsters approach pension savers who have been scammed, offering to help them get their money back for an upfront fee.
‘Financial precipice’
Tom Selby, head of retirement policy at AJ Bell, said: “The last two years have already been incredibly difficult for millions of people, with coronavirus and lockdowns taking a massive toll on people’s physical and mental wellbeing, including their financial health in some cases. On top of this, the cost-of-living is rising rapidly, with the energy price cap set to surge yet again later this year.
“All of this means millions of Brits face being on or near the financial precipice in 2022. Depressingly, this is a perfect environment for scammers to thrive. Unscrupulous fraudsters will attempt to take advantage of vulnerability through any means possible, from offering ‘early access’ to pensions to pushing dodgy investments promising sky-high, guaranteed returns.
“Offers such as these might be particularly tempting to people experiencing inflation on the brink of double-digits. However, the reality is that, unless you are in serious ill-health, accessing your pension early will lead to a huge tax penalty from HM Revenue & Customs (HMRC), while being lured by the promise of sky-high investment returns from a scammer could see you lose everything.
“Regulators are right to get on the front foot on this and the vast majority of the pensions industry stands ready to help educate customers about the risks.
“It is particularly positive TPR is taking steps to improve intelligence sharing and testing new scam prevention solutions. It is vital firms share any concerns they have about schemes, firms or individuals with the relevant authorities, and vice versa, to ensure as many savers as possible are protected.”
