The Pensions Regulator (TPR) said that its concerns about high fees and unsuitable advice are often linked to transfer requests into international self-invested personal pensions (Sipps).
The transfers look towards investment overseas but through UK-registered Sipps.
The regulator’s investigations show those seeking these transfers “frequently live overseas with the transfer facilitated by intermediaries and advisers outside the UK”.
TPR said that overseas advisers are targeting members via social media platforms and then guiding them through the transfer process.
Nicola Parish, executive director of frontline regulation at TPR, said in a blog post: “Here we’ve heard evidence that these overseas intermediaries ‘coach’ the saver through the transfer process convincing them it is in their interest when, in reality, they may be exposed to high or unnecessary charges.
“This coaching can be successful in getting the saver to continue with the transfer even when they’ve received regulated advice advising they should not transfer.”
The watchdog added: “Where regulated advice is required, there were a number of UK firms offering this. Although this advice was predominantly not to transfer, the member still often goes ahead with the transfer.”
The regulator also found during its pension scam threat review that industry players use different definitions of ‘scam’.
While some adhere to the Pension Scams Industry Group (PSIG) code of best practice definition, this has been deemed too vague as it can “encompass a range of harms to savers”.
Others admitted they would like the definition to be even broader and include “any activities that may lead to poorer outcomes for savers”, the TPR said.
This might be concerning not only because it could penalise legitimate activities that could turn sour for reasons beyond the industry or the member’s control, but also because sector professionals are failing to reference scams in relation with fraudulent activity, the watchdog found.
Some respondents have lamented this, as they believe not looking at scams in tandem with fraud is a “barrier as it adds to the opportunities for a wider interpretation”.
In terms of scale, different firms have, unsurprisingly, different experiences of scams, since smaller providers will have come across fewer instances than larger administrators.
But also, using different definitions definitely doesn’t help when trying to compare the data available, the regulator added.
One problem the TPR also faced, was the reliance on victim reporting. This has been deemed as somewhat ineffective since it could take years before a member realises they were victim of a scam.
More education needed
Tom Selby, head of retirement policy at AJ Bell, believes that the strongest weapon savers can have in their arsenal is education on this issue and how to spot dodgy offers.
“Despite substantial government and regulatory efforts to clamp down on fraudsters, financial scams continue to ruin people’s lives,” he added.
“The average scam loss is estimated to be in the region of £75,000 ($94,020, €87,800) – around £13,000 higher than the average value of a pension pot accessed for the first time. In short, many scam victims will see their entire retirement blown apart, with no guarantees they will get any of their money back.
“The model of choice used by scammers has shifted away from so-called ‘pension liberation’ fraud – a transfer model aimed at allowing access before age 55 – and towards financial scams outside pensions.
“Post-pension freedoms, encouraging people over 55 to withdraw their funds and invest in dodgy vehicles is by far the easiest way for scammers to make money.
“There is some anecdotal evidence the pensions cold-calling ban has discouraged – although not completely eradicated – this problem. Although fraudsters are now increasingly using social media to target people. Policymakers and the wider industry have ramped up efforts to protect savers from scammers in recent years, with by far the most effective tool being education.
“The best way to avoid being scammed is to understand the tell-tale signs, which remain things like unregulated investment ‘offers’ that are too good to be true, high fees and unsolicited approaches out of the blue. If you are at all unsure about where you’re about an investment, stop, think and check the firm you are dealing with is regulated. If in doubt, do not part with your money – you could live to regret it.”