For those of us working in the pension sector, pension scams are a big issue, with no quick or simple solutions to combat their increasing sophistications. As pension scheme trustees, we all agree that we must be aware of how scammers operate; reporting suspects to the authorities and, of course, blocking any member transfers that we feel could be fraudulent.
Pledge to combat pension scams
The Pensions Regulator (TPR) is encouraging more trustees, administrators and scheme managers to sign up to its Pledge to Combat Pension Scams. In doing so, schemes are committing to:
- Warning their members about scams on a regular basis;
- Familiarising themselves with the signs of a scam (via the Trustee Toolkit);
- Using the Scam Smart resources provided by the Financial Conduct Authority (FCA), TPR’s scams information and the Pensions Scams Industry Group’s code;
- Reporting their concerns about a scam to both the saver, and the authorities.
Even those trustees who feel they are fully up to speed with the issue, have to remain alert to the increased deception techniques employed which seem to be constantly evolving. Pensions freedoms mean the lure of a considerable pot of money is proving very attractive and members could be encouraged to transfer or withdraw monies by con artists who sound all too plausible.
Scammers are continually developing new and sophisticated ways to cheat savers out of their money, such as the use of online methods including fake or cloned websites, social media platforms and false reviews on websites. It is often difficult for members to determine whether it is a genuine opportunity or a scam. While the cold calling ban means that phone scams have become a somewhat less popular tool for scammers to engage the public, it’s not as easy to legislate the online world.
In June, TPR and the National Fraud Intelligence Bureau (NFIB) jointly reviewed the threat of pension scams. Interestingly, a key issue found for the financial sector is in defining what is meant by the term scam. This is quite fundamental, as a lack of consensus does not help in tackling the issue. For example, the review found that some within the industry believe the term scam trivialises the severity of the financial and psychological damage it causes. Others believe we should use the definition ‘any activities that may lead to poorer outcomes for savers’. However, others note that this could be interpreted very widely, without any reference to the word ‘fraud’.
From the perspective of Trustees – the guardians of our members’ pension funds – we should perhaps use the definition ‘activities that lead to poorer outcomes for savers, which have the intention of financially benefitting an unrelated third party’.
The Pension Scams Industry Group (PSIG) offers a comprehensive Code of Best Practice on Combatting Pensions Scams. The PSIG is soon to publish an updated version of its Code to cover the new transfer conditions which came into force in November 2021. While the Code is not binding, TPR recommends that trustees use the PSIG code, which details the steps that can be taken to help protect savers.
Recognise the signs
Pensions liberation has been well publicised. TPR and NFIB’s review noted that there has been a general decline in the number of members under age 55 who are being persuaded to transfer to unlock their savings – a reflection, perhaps, of the success of campaigns to highlight this issue to savers. However, pension investment scams as well as high fees and poor advice are still at an unacceptable level.
TPR published new conditions for a transfer to take place in November 2021 (see my earlier blog Scammer Alert Flagged Up for more details), highlighting:
- Red flags should be clear and an easy decision for trustees to deny the transfer request.
- Amber flags can be a bit more difficult.
In Q2 2022, nearly half of all amber flag cases were referred to MoneyHelper for ‘reasons unknown’. This does not help with data collection to identify where scams are coming from. While not all overseas investments will be part of a scam (such as some global asset managers’ mainstream investments), the regulations point to overseas investments being an amber flag, which requires members to take advice from MoneyHelper before the transfer can go ahead. In some cases, members may be taking advice unnecessarily, which delays their transfer. It is hoped that more clarity on the definition of overseas investments will be provided in due course, to resolve this problem. In the meantime, Trustees are currently treading a fine line between potentially unnecessarily delaying a member’s transfer and stopping members from falling victim to a scam.
Final thoughts
TPR has recently published a blog that ‘urges everyone in the industry not to sit on suspicions but help protect savers by reporting concerns.’ TPR has stated that “for trustees, administrators and providers, a failure to report suspected scams amounts to a failure to protect savers”. This is a good reason for trustees to do their homework and take special care with potential amber flag cases.
With scammers becoming increasingly sophisticated, trustees are a vital part of the defence of members’ monies. There is a lot of information available for trustees provided by numerous organisations which explains our role in the fight. We must be confident that we are abreast of industry good practice as well as being nimble enough to respond to further changes coming down the line.
With over 40 years-experience in trusteeship, 20-20 Trustees is an award-winning professional independent trustee organisation, committed to making a difference in the world of pensions. If you would like more information or advice on pension scams, then please get in touch today!