Pension scams rife almost one year on from when Covid-19 first struck

These uncertain times are often seen as a window of opportunity for scammers looking to prey on vulnerable individuals. A recent report by Action Fraud found that pension scams had become one of the most common types of fraud to occur last year. In fact, the Financial Conduct Authority (FCA) announced in January that it had opened 24% more pension scam cases last year than in 2019.

In addition to this, in the Work and Pensions Committee’s virtual hearing on pension scams, The Pensions Regulator revealed that it is investigating more than £54 million worth of lost pension savings in cases that have affected 18,000 savers. However the FCA warned that this number is in fact likely to be much higher.

How to protect pension scheme members

Since the onset of Covid-19 many more pension scams have emerged, with thousands of pension savers affected. Those age 55 and above could be particularly easy targets for fraudsters and unfortunately, scheme members who fall victim to pension scams could be left with a significantly reduced pension sum – and in some cases, entire life savings can be lost.

Most people are confident that they are able to spot a scam, but research from Citizens Advice Changing the story on scams (2017)found that more than one in eight of those targeted had been drawn into the latest scam. It can be easy to see why so many are fooled. Scammers have legitimate looking websites and their friendliness can make you feel like they know you well. But of course, scammers don’t look like scammers!

Individuals with defined benefit (DB) pensions looking to access the cash should be particularly vigilant. XPS Pension Group highlighted that 64% of DB transfers showed at least one sign of being a potential scam in November last year. Ensuring access to appropriate advice is key here.

However, there is an opportunity for employers and Trustees to prevent pension scams. The Pensions Regulator has advised Trustees to urge members ‘not to rush decisions and provide them with clear, relevant and timely information’ so they can make ‘informed decisions’. They also instruct Trustees to follow the Pension Scams Industry Group code of good practice, based on three key principles including: raising awareness of pension scams for members and beneficiaries; having robust processes for assessing whether a scheme may be operating as part of a scam; and being aware of the known current scam strategies.

Supporting informed decisions

Employers and Trustees play a key role in ensuring members make informed choices concerning their pensions. This includes providing financial education and guidance, as it can help members understand their options and what red flags to look out for. It can also help employees to decide if they would like further support such as regulated financial advice, although this of course a requirement for anyone looking to transfer a DB scheme over the value of £30,000.

Carrying out due diligence on providers can make the process far more robust. This should cover areas such as; qualifications of advisers, regulatory record of the firm, compliance process e.g. compliance checks of 100% of cases, pricing structure, and experience of working with employers and Trustees.

It is absolutely crucial that employers and Trustees put in place robust processes to support members and protect them from scams. This now needs to be about striving for good member outcomes and not minimal compliance, as many years of pension savings can be lost in the blink of an eye.

The author is Jonathan Watts-Lay, director at WEALTH at work.

This article is provided by WEALTH at work.