Law enforcement, financial regulators and the private sector need to do much more and work together to protect savers from fraudsters, says Phil Brown.
How safe are we from scammers? This is a question that we don't ask ourselves often enough.
The opinion of many is that scams are something that happen to other people, but the evidence is clear that we are all potential victims of crimes such as pensions fraud.
Fraudsters have for a long time targeted retirement savings by tricking savers into transferring and investing their pension pots into unsuitable or bogus investment products, but the fear is that this will increase due to the fallout from the Coronavirus pandemic as criminals prey on the vulnerabilities of worried savers, seeking a way around newly presented financial difficulties.
The People's Pension's joint research with policing think tank The Police Foundation has found that from 13 pension providers alone, almost a thousand customers with combined savings of £54m were targeted by scammers last year, with transfers worth £31m going ahead, despite warnings about the potential risk.
Pensions are the biggest personal asset for many of us - with total future entitlements estimated by ONS as £6.1trn in the UK - which is 42% of aggregate household wealth, more than any other source including property and financial savings. The asset pool backing these entitlements is estimated at £2.5trn. Whichever estimate we use for the size of the UK pensions sector, the potential target for criminals is huge. Figures show that on average in a single year, each victim lost £91,000 to pension scammers with some losing as much as £1m, meaning that the consequences of this type of crime are truly devastating to both the individual and their wider family.
Our newly published joint report, Protecting people's pensions: understanding and preventing pension scams, explores the scale and nature of pension scams and examines how fraudsters operate. The study also reveals that much more needs to be done by stakeholders in law enforcement, financial regulators and the private sector to help savers if they are to get the better of those who routinely leave misery in their wake.
We have seen growth in different kinds of scam. Increasingly, people have been encouraged by glib crooks to transfer or reinvest their pension in a way that harms them financially to the benefit of those providing the arrangement. Sometimes people are encouraged by the promise of implausible rates of return to reinvest their pension savings in assets which turn out not to exist. Other scams consist of creating schemes with multiple layers, where while there may be a genuine investment, each management layer sucks exorbitant costs from the original investment, severely depleting the savings.
Although pension providers are currently able to flag potential fraudulent activity to customers that is the limit to their powers and neither they or The Pensions Regulator (TPR) are able to stop transfers; a key reason why two thirds of 938 savers highlighted in the research, still transferred £31m worth of funds despite being advised not to do so. It is paramount that the government gives TPR the power to halt a transfer if a suspected fraud has been reported to it by a provider, although members of schemes should always have the right to carry out any bona fide transfer and have the right of appeal to The Pensions Ombudsman.
It is also imperative that unwitting victims of pension fraud are no longer hit with tax penalties from HM Revenue and Customs, which only serves to increase the financial pain they suffer.
There also needs to be a far broader definition of pension fraud to ensure crime data provides an accurate picture of the issue, with a central database set up to ensure a more systematic collection and analysis of intelligence. We also want to see police investigators supported by specialist fraud victim support services such as that provided by the National Economic Crime Victim Care Unit.
Now is the time for policymakers and law enforcement bodies, together with the industry, to take clear and decisive action to prevent criminals from ruining the lives of even more pension savers.
Phil Brown is director of policy and external affairs at The People's Pension
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