Pension fraudsters are often described as ‘pushy', but what else do we know about them? Natasha Browne investigates
Pension scammers are a persistent bunch, always finding fresh ways to pull the wool over innocent savers' eyes. Figures from the Financial Conduct Authority (FCA) show £1.2bn is lost to investment fraud, including pension liberation, every year. The average loss is £20,000.
Experts are worried the Budget freedoms will exacerbate the problem. Last year The Pensions Regulator (TPR) executive director Andrew Warwick-Thompson said the flexibilities could give fraudsters more ammunition when trying to lure people in. "It could have the effect where people say ‘hey look, it's all legal – come do it with us'," he said.
Evidence of this was published last week. Research from Phoenix Group showed people were three times more likely to be approached about unlocking their pots since ‘freedom and choice' was announced. The study of 2,004 people found 45% had experienced unsolicited contact in relation to accessing their pensions.
By July last year the Pensions Ombudsman (PO) was also investigating 84 complaints about pension scams. This marked a 60% increase over a three-month period, with the majority of complaints related to blocked transfers.
Fraudsters are drawn to the most vulnerable; those in debt and desperate for cash, or who are confused about the rules surrounding their pension. Phoenix Group has prevented over 1,070 suspicious transfers to date, worth £22.3m. The group's financial crime intelligence analyst Parminder Dhothar has seen cases where scam artists pose as guidance guarantee service providers.
"Fraudsters are known to have been cold calling and stating that the government has asked them to make contact following the pension rule changes announcement in 2014. Some may claim to be from a provider or from an organisation such as the Money Advice Service," he says.
There are the usual unsolicited texts and emails too, but Dhothar has even heard of people making home visits or setting up pop-up stores to offer ‘guidance'. It can be an effective way of gathering data, which can be sold on to scammers further down the liberation line.
Profile of a fraudster
The ringleader will rarely be on the front line, says Pinsent Masons senior associate Ben Fairhead – a member of the Pension Liberation Industry Group (PLIG). "They are not likely to take on the role of trustees of schemes that are being used for liberation. They will ensure someone else takes on that role, normally someone who stands to benefit less from the fraud, but who is often acting at the direction of the main fraudster," he says.
The scammer will probably be behind setting up the scheme and might be attracted by the opportunity to design a model that exploits tax rules. Fairhead adds: "They might, on the face of it, be perfectly charming, persuasive people, no doubt making promises of easy cash for those who work for them and those willing to put themselves forward to act as the trustees for the purpose of scheme documentation."
Charm is certainly a key trait for convincing people to step out of their comfort zone, but ‘pushy' is another word used to describe pension scammers. PLIG leader Margaret Snowdon says fraudsters are hard to spot. But she adds: "They do tend to mimic legitimate schemes and providers. They are fairly clever or they would be easily found out. It is probably the patterns of behaviour that help identify them –cold calling for example, or pushy and threatening to sue on delays."
Fraudsters will often come from the financial services industry they target, according to Dhothar. They can include ex-IFAs, accountants, solicitors, or have come from a background in wealth or debt management. "They can be particularly sophisticated individuals with a wealth of experience," Dhothar says. An example of this can be found in the former president of the Association of Tax Technicians, Andrew Meeson. He was found guilty of pensions tax fraud worth £5m in 2013, and subsequently linked to two suspected liberation cases.
Opportunistic is another adjective used to illustrate the personality of a pension scammer. Fairhead expects them to capitalise on the Budget freedoms by targeting over-55s. "This will probably be particularly the case given they will not have to contend with the strict rules around transfers that have enabled the industry to put much more of a block on transfers that will, in turn, have hindered pension liberators in more recent months," he says.
Interestingly, scammers will dig deep to look legitimate. They not only produce 'impressive' marketing material and websites, but might also pay search engines to rank their ads under certain search terms. Dhothar says: "If you do a search like ‘cash back pension', you'll see a lot of dubious websites at the top of that search. And they're all marked with an ad sign, which indicates that the people behind those websites have paid Google to have their websites come up at the top."
PLIG plans to publish a voluntary code of practice for handling pension scams this quarter. It will help to set the standard for dealing with transfer requests.
Six red flags for spotting pension fraud:
• Any unsolicited approach; phone, email, text messages or in person
• Free pension reviews, particularly from unregulated companies marketing early access to cash or guaranteed investments
• Pushy advisers that encourage members to speed up signing paperwork, as well as the use of couriers to collect/sign paperwork
• Any mention of loopholes, overseas or strange/creative/unique investments - unregulated such as hotel rooms, car parking spaces, forestry, renewable energy, storage pods
• Any mention of loans or bonuses provided by government
• Promotions to access cash under age of 55
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