The UK’s Work and Pensions Committee has called on the government to take tougher action on internet giants such as Google and social media platforms, as they are often used to market fraudulent financial products.
Recently, International Adviser revealed that Instagram is being used to advertise dubious products with one offering 18% returns over 12 months.
In December 2020, the government brought forward legislation to tackle online harm, namely the Online Safety Bill, but decided to exclude financial harms from its scope.
The committee is now urging the UK government to rethink its approach and include financial scams in the draft bill.
According to the Pension Scams Industry Group (PSIG), an estimated 40,000 people have fallen victim to pension fraud since 2015.
Tom Selby, senior analyst at AJ Bell, said: “The UK is in the grip of a scams epidemic, with a staggering £10bn ($14bn, €12bn) estimated to have been stolen from people’s retirement pots since 2015.”
An online ‘Wild West’
The task, however, is not going to be easy, he added.
“Given that context, this report pulls no punches, laying bare the colossal scale of the challenge facing policymakers and accusing internet firms of allowing an ‘online free for all’ where scammers are able to ‘advertise with impunity while the tech giants line their pockets from the proceeds of their crimes.’
“The interventions proposed by the committee, while significant, are proportionate to the size of the problem and have the potential to dramatically boost protections for savers.
“Tackling online advertising is the most obvious place to start, and the government should seize this opportunity to include financial scams in the upcoming Online Safety Bill.
“Holding social media firms and internet companies accountable for the content they display would be a huge step in the right direction in the fight against fraudsters, allowing authorities to get a grip on scam-ridden world that increasingly resembles the Wild West.”
Jon Greer, head of retirement at Quilter, said that fraudsters’ ever-changing tactics should be mirrored in the latest legislative action.
“Throughout the committee’s inquiry, it’s been clear the modus operandi of pension scams has changed significantly since the introduction of pension freedoms. The move to digital, partly driven by a ban on cold-calling, combined with the fact that savers now have much greater flexibility in deciding what happens to their retirement pot, has caused a boom in investment-related scams facilitated through search engines and social media sites.
“Search engines are having their cake and eating it by taking money from both the scammers to host the adverts, and from the regulator to warn consumers of the risks of fraudulent adverts. It is ludicrous that they can have it both ways while consumers ultimately pay the price. Something has to change, and the Online Safety Bill is the ideal time for the government to take decisive action to prevent scam ads appearing online.
Rethink the prevention process
But Greer believes the effort should not only come from the government and tech companies.
“Pension schemes also have a part to play in reducing the risk of scams, more so now that the Pension Schemes Act will provide schemes with the power to restrict a member’s statutory right to transfer in certain circumstances.
“On the face of it, restricting the statutory right to transfer to prevent a clear scam is a good thing. But it is vital that the government get the next steps right and do not throw the baby out with the bath water and make the transfer process cumbersome and slow for all transfers, not just when a red flag is raised.
“Schemes will need absolute clarity on the circumstances when transfers can and can’t be blocked, and this means specifics on what constitutes a ‘red’ flag, and what constitutes an ‘amber’ flag must be crystal clear and must focus on those minority of transfers that display characteristics that cause concerns.
“We need a rethink in the way that fraud detection and prevention works in the UK. There are so many different agencies and bodies, with overlapping jurisdictions, that scam victims find it hard to know where to turn when they are defrauded.
“And the truth is, we are still flying blind when it comes to knowing just how much is stolen from people’s pensions each year. It is good to see the committee recommend that PSIG’s definition should be treated as industry standard, but we do need much richer data on amount and nature of pension and investment scams.
“Including scams in scope of the Online Safety Bill and restricting the statutory right to transfer are not the be all and end all of scams. Ultimately, they are after the event and do little to tackle scams right at the source.
“For this, we need more government and regulatory attention on ways to increase enforcement and criminal actions against scammers. You expect the police to get involved if you are mugged, but there is also simply no jeopardy for the scammers who are stealing people’s savings, which are often equivalent to the value of someone’s house.
“In fact, in some cases it is the victim that gets penalised through a punitive tax charge rather than the scammer. This is a perverse tax on pension scam victims, so it is good to see the committee recommend that HM Revenue & Customs use their discretion to support rather than punish pension scam victims.”
