Employers and Trustees can do more to help combat pension scams.

27th July 2020

Freedom and choice provides much more flexibility for pension scheme members but the downside is that without sufficient knowledge, it can be easy for them to make poor decisions such as falling for a scam which could create a permanent dent in their retirement income.

The cold calling ban has helped to eliminate one way for scammers to contact potential victims but there is still an increasing number of victims being targeted online. The Financial Conduct Authority (FCA) reported that over £27million was lost to online investment scams in 2018/19, with victims losing on average £14,600.

Although these figures are high and would undoubtedly be distressing for the individuals affected, the consequences of falling victim to scams specifically targeting pensions are even greater. The most recent FCA figures show that victims of pension fraud lost on average £82,000, which for many savers takes decades to achieve. This leaves victims of pension scams approaching retirement with a significantly reduced income and in some cases, victims have lost their entire life savings.

Unfortunately, the reality is that the situation is now getting worse due to the impact COVID-19 has had on global market volatility and the fact that many household incomes are under increased pressure. Scammers are now using this situation to their advantage and pension savers are at great risk. Recent figures from Action Fraud show that over £8.7m has been lost to coronavirus-related scams since February 2020, with pension scams being among the most common type of fraud.

While the regulators and the industry are increasingly aware of the situation and are putting measures in place to reduce the amount of pension savers falling victim to scams, there is still a long way to go.

To help employers and Trustees who are concerned about their pension scheme members falling for a pension scam, we have put together our top tips to help members be more vigilant:

1. Scams don’t look like scams –Scams look and sound legitimate by having professional looking websites and literature which is why it is easy to be deceived. Members must always check that the company is registered with the FCA before committing to anything.
2. If it’s too good to be true, it probably is –If an investment offers the opportunity of a lifetime, it’s likely to be a scam and there is little that can be done for those who fall for it.
3. Scammers will do their homework – Those who run pension scams are clever and may have been able to get hold of an employee’s personal details; not just about them, but their local area and interests. Members need to be aware to avoid letting scammers’ knowledge and friendliness catch them off guard and allow them to be conned.
4. The right decision takes time –Genuine advisers will never rush anyone to make a decision. Anything that is advertised as a limited time offer is likely to be a scam. Members should always check whether the adviser is on the FCA register.
5. Know the basic facts first –Pensions can normally only be accessed at age 55+, with the exception of seriously ill health. In normal circumstances, if a company promises to release pensions early, they are lying and it is a scam. Members must know the facts to avoid fraudsters.
6. Know where to go for help –Members must know where they can go if they are unsure about anything they have been offered. This is usually their employer if it relates to their workplace pension, or The Pensions Advisory Service (TPAS) or Pension Wise for any other kind of pension.
7. Protecting privacy – Scammers will use technology and try to contact individuals through various means such as social media, texts, telephone calls (despite the ban) and emails. If members are in doubt, they should ignore it. Members should beware of what they share through social media and check that their privacy settings are as secure as possible.
8. Help stop the scams –If a member thinks they have been or are being scammed, they should contact TPAS immediately. Not only may they be able to help the individual involved, but they will be able to help others from falling for the same scam.

How employers and Trustees can help combat scams

Employers and Trustees are the first line of defence in protecting retirement funds and the regulator is expecting them to step up to the task. Providing financial education and guidance to members at retirement can help to ensure members understand their options and the risks involved. Arming them with the facts on what they can and cannot do with their pension and the potential risks involved will help them to make informed decisions and avoid making costly mistakes.

Members also need to understand that taking regulated financial advice and getting the additional consumer protection it offers should not be underestimated. The Pensions Regulator is urging savers to seek regulated financial advice before making any decisions which could be facilitated by employers and/or pension schemes.

Historically, there have been concerns over helping members gain access to advice but if done correctly, it does not carry the risk many presume. Having access to a regulated financial adviser that has been vetted by the employer or scheme not only provides security, but the adviser will be more familiar with the structure of the scheme to provide a better quality of advice for members.

Providing a combination of good quality and timely financial education, one-to-one financial guidance and access to regulated financial advice will lead to far better outcomes for employees and members at retirement, rather than leaving them to go it alone.