Foreword: We must all do more to combat pension scams
Criminals who steal people’s pensions ruin lives. It’s plain and simple. And as the regulator for workplace pensions, our primary focus must always be on ensuring savers’ pension money is protected now and in the future.
Scammers use psychological deception and professional looking materials to trick people out of their savings. If they can, they will take every penny and devastate savers’ financial futures. That’s why we are determined to do all we can to educate savers on the risk of scams and to help stop scammers in their tracks.
Over many years, we have worked to prevent savers’ losses and put fraudsters in prison: running large-scale public awareness campaigns, leading a multi-agency response to the threat through Project Bloom – set to be renamed as the Pension Scams Action Group (PSAG). We have helped to implement new protections brought in by the Pensions Schemes Act 2021 – which we believe will be a game-changer in the fight against fraud.
But the truth is, we must all do more to combat pension scams.
Industry must act to deliver good outcomes for savers by being proactive in their pension scam warnings, innovative in driving improvements in protection standards, and reporting potential crimes to the authorities. Building on this, we and our partners in regulation, law enforcement, and government must also play our part – making sure schemes are up to standard and working together effectively to keep savers’ money secure.
Every one of us has suffered over recent times because of the Covid-19 pandemic and cost of living pressures. It is at times like these that we know savers could be vulnerable to the approaches of pension scammers. That’s why now is the time for industry, regulators, and government to do more and truly work together to put savers at the heart of all that we do.
That’s why in this strategy we have set out our plan to combat pension scams. It contains a new approach for how we will tackle the scourge of scammers by:
- educating savers about the threat that scams present
- encouraging higher standards and preventing practices which lead to saver harm
- fighting fraud through the prevention, disruption, and punishment of criminality
But this task is not ours alone, and we expect industry to also lead the way in thinking of innovative ways to protect savers now and in the future.
Thanks to automatic enrolment, millions more people are now saving for later life. Their pension pots are the key to their future financial wellbeing, helping to generate financial resilience, confidence, and empowerment in retirement. I don’t want anyone to lose a lifetime’s savings in the blink of an eye, and through this strategy we set out our plan to protect savers.
Nicola Parish, Executive Director of Frontline Regulation
Our strategic aims
We want to prevent savers falling victim to scammers. We will deliver this through our plan to combat pension scams. This seeks to:
- educate savers about the threat scams provide
- encourage higher standards that prevent practices which lead to saver harms
- fight fraud through the prevention, disruption and punishment of criminals
This approach has been developed as part of our strategic priority of Security as set out in our Corporate Strategy. This outlines a strategic goal to keep all savers' money secure.
This strategy supports and complements the work of PSAG – the multi-agency taskforce which brings together government departments, agencies, regulators, law enforcement bodies, and representatives of the pension industry to tackle pension scams. PSAG activity is directed towards achieving outcomes across areas of its strategic action plan:
- improving public awareness of pension scams to prevent savers falling victim to them
- understanding the problem – enhancing the intelligence picture to support and inform effective policy-making
- enforcement and regulatory interventions – sharing intelligence leading to enforcement and disruption activity
- legislation and regulations – identifying what actions should be taken forward by government and others to prevent future pension scams
- non-legislative interventions, including ‘good practice’ that can reduce the likelihood of pension scams without the need for legislation
- supporting victims to minimise the impact scams have
The actions outlined in this strategy show how TPR intends to contribute to delivering these objectives.
What we mean by scams
We use the PSAG definition of a pension scam, as set out in our submission to the Work and Pension Select Committee Inquiry, Protecting pension savers – five years on from pension freedoms: pension scams.
“The marketing of products and arrangements and successful or unsuccessful attempts by a party (the “scammer”) to:
- release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member
- persuade individuals over the normal minimum pension age to flexibly access their pension savings in order to invest in inappropriate investments
- persuade individuals to transfer their pension savings in order to invest in inappropriate investments
where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.”
The definition is broad and captures a range of actions. However, in this strategy and our future approach we are keen to distinguish between:
- pension fraud, such as investment fraud, where there are potential criminal sanctions brought about by TPR and PSAG partners, and
- practices which lead to saver harm, such as high fees, which we or others can mitigate through use of a regulatory toolkit
We have made this distinction because savers will often view the loss of some, or all of their pension as a ’scam‘ irrespective of whether a fraud was committed or not, but our approach or sanctions which tackle the issue may be very different.
We are primarily, but not solely concerned with seven kinds of pension scams, which often can be seen in combination with one another. They are:
- Investment fraud – those who misrepresent high-risk or false investments to savers
- Pension liberation – where scammers mislead savers into accessing their pension pots under the age of 55, unaware that they will incur a tax charge or potentially engage in tax evasion
- Scam pension schemes and providers – schemes and providers set up to deceive victims, which either don’t exist or exist but are committing fraud
- Clone firms – scam schemes and providers that are disguised as legitimate entities
- Claims management companies – such as cold-callers who claim savers have been mis-sold a pension and then ask for an advance fee to begin a claims process
- Employer related investment (ERI) – breach of ERI restrictions when employers divert employees’ pension payments to invest inappropriately in their business leading to losses to savers
- High fees – excessive fees often layered through unnecessarily complex business structures
Related to these seven are recovery room scams. This is where fraudsters approach pension savers who have been scammed, offering to help them get their money back for an upfront fee.
The harm we are seeking to prevent
Consistent with our Corporate Strategy and our Joint Regulatory Strategy with the Financial Conduct Authority, the harm we are seeking to prevent is:
- people losing some, or all of their pension savings to scammers
We see three reasons why this harm might occur:
- savers not being enabled to make good decisions
- practices by schemes, advisers and providers which lead to saver harm
- pension fraud and other criminality
Savers not being enabled to make good decisions
The issue
Pensions are complex and often savers have few interactions with their provider or scheme until they come to access their pension savings in retirement. These factors – against the background of low levels of financial literacy more generally – mean that savers can be vulnerable to the approaches of scammers. Take-up of regulated financial advice and guidance, which could help savers spot the signs of a scam, is low.
We want industry to improve saver engagement with their pensions and be proactive in their pension scam warnings. Schemes, providers, and advisors can and should do more to make pensions work well for consumers.
Our response
We will:
- encourage industry to use anti-scam messaging on all annual benefit statements and touchpoints that savers have with their provider
- continue to support and amplify the messages of the FCA’s ScamSmart campaign adapting messaging to deal with new and emerging threats
- support and show ongoing support for the implementation of the Department for Work and Pensions Stronger Nudge to guidance regulations
- explore how employers can be used to promote anti-scams messaging
- continue to encourage industry to go beyond minimum compliance and engage savers with their pensions, and work to improve the pensions consumer journey including a review of guidance on member communications for scam-prevention messaging
- support and encourage schemes and employers to engage with the UK Strategy for Financial Wellbeing which seeks to improve financial literacy across the country
Practices by schemes, advisers, and providers which lead to saver harm
The issue
Over time the threat of scams has evolved from being primarily one of pension liberation into a wider number of pension scams. This evolution has blurred the lines between pension scams and other financial frauds – and also saw the rise of practices by schemes, advisers, and providers which lead to saver harm.
These practices could result in harm to savers by breaking regulatory rules, involve mistruth or lies, and be morally wrong – but they may not constitute a criminal offence. We believe there are three main drivers of these kinds of scams:
- that too many schemes which savers transfer out of have poor governance and administration and are unable to spot the signs (this is also a driver in criminal scams)
- overlapping regulatory jurisdictions can mean that scammers can skirt the regulatory perimeter and avoid detection
- in the past, advice payment incentivisation meant decisions were not made in savers’ interests
We want industry to do more to prevent practices which lead to saver harm. This means improving their standards or consolidating and leaving the market.
Our response
We will:
- encourage all schemes to comply with the Pledge to Combat Pension Scams and Pension Scams Industry Group (PSIG) Code principles
- consider whether Pledge or PSIG Code compliance could be a mandatory element of the scheme oversight and customer service strand of future value for members assessments for DC trust-based schemes
- encourage consolidation of poorly run schemes and as schemes become larger, systemically important entities over time, explore whether Chairs of trustee boards should be professional or accredited
- monitor, update and improve the Trustee toolkit module to reflect any further changes brought in by the Pension Schemes Act 2021 or learnings from the PSAG threat assessments if required
- work with the biggest administrators so that they voluntarily adopt best practice on transfers
- review our data-sharing agreements with the Money and Pension Service (MaPS) and the FCA and continue to have open dialogue about trends identified
- work with MaPS and DWP to analyse the Pension Schemes Act 2021 amber flag transfer data and develop appropriate policy responses to sharp practice
- work with PSAG partners to review the suitability of scam prevention warnings for those transferring to self-invested personal pensions (SIPPs) and small self-administered schemes (SSAS)
Pension fraud and other criminality
The issue
It has been estimated that £2.5tn of pension wealth in the UK is ‘accessible’ to fraudsters because the saver could move their benefits – a huge target base for criminals. However, data quality for law enforcement is poor. Despite concerns from industry that 5% of pension transfers could have features of a scam, just 253 crime reports were made to Action Fraud – the UK's national reporting centre for fraud and cyber crime in 2022 to 2023.
Industry must do more because this lack of data hampers law enforcement efforts and means the understanding of how savers are being targeted is difficult to determine and pursuit of criminals is much more challenging.
There are three main reasons for this poor data quality:
- as common with other frauds, pension scams are underreported – they take place over many years and savers are often unaware, at least initially, that they have been defrauded
- there is not a clear line which separates pension scams from other types of investment or financial fraud
- there is no requirement for the pensions industry to report suspected scams
With good data provided by industry, TPR can tackle and support law enforcement partners in PSAG to fight fraud and criminality.
Our response
We will:
- continue to investigate and prosecute scam cases, issue penalties, and suspend and prohibit trustees
- explore the setup of a new dedicated PSAG scams hub to co-ordinate intelligence and direct fraud disruption, prevention and enforcement activity
- lead the development of a new PSAG strategic threat assessment on an annual or biennial basis
- scope and develop senior-level strategic partnerships with key organisations across PSAG helping those with law enforcement expertise to utilise our pensions knowledge
- work with partners to ensure that, where savers have been scammed, potential routes for compensation are explored and progressed and that care is taken over ongoing costs to minimise further depletion of scheme funds
- encourage industry to report fraud and criminality to Action Fraud through multi-channel communications and work with law enforcement partners
- explore opening a regulatory sandbox to allow industry to test solutions for scam prevention and intelligence gathering in partnership with other relevant regulators
- engage in an 18-month review of Pension Schemes Act 2021 regulations with supporting data to improve legislation where possible
- engage alongside PSAG partners with other relevant proposed legislation to protect savers including the Online Safety Bill
The outcomes we will deliver
Our ambition is to create a world where everyone is informed of the risk and protected against pension scams. However, we recognise that achieving this ambition is not solely within our gift as a regulator. Despite enhanced protections, savers could still choose to invest in a pension scam scheme, and there are areas of law enforcement and regulation beyond our regulatory perimeter.
With that in mind, this strategy focuses on the practical measures we can take to contribute towards this vision. For the issues we have identified that are beyond our control, we will work in partnership with others, especially PSAG, to achieve our goals.
The outcomes we seek to deliver are:
- all savers are made aware of the risk of scams
- the vast majority of savers are in schemes which provide gold-standard, Pledge-compliant scam protections
- schemes report potential fraud activity to authorities
- creation of a hostile environment for those seeking to defraud savers using improved data
Beyond these outcomes, we will play our part in contributing to the wider successful delivery of the PSAG strategic action plan, including areas such as victim support.
Our plan to combat pension scams
| Harm | People losing some, or all of their pension savings to scammers | |||
| Key drivers | Savers not being enabled to make good decisions |
Practices which lead to saver harm | Pension fraud and criminality | |
| Strategic aims in response | Educate savers about the threat that scams present | Encourage higher standards and prevent practices by schemes, advisers, and providers which lead to saver harm | Fight fraud through the prevention, disruption, and punishment of criminals | |
| Outcome we will deliver | All savers are made aware of the risk of scams | Most savers are in schemes providing gold-standard protections | Schemes report potential fraud activity to authorities Creation of a hostile environment for those seeking to defraud savers using improved data |
|
Actions
All savers are made aware of the risk of scams
Year 1
- set expectations that schemes include a pension scam warning in every annual benefit statement with a link to ScamSmart
- support Stronger Nudge to guidance
- support UK Financial Strategy for Wellbeing
- support the ScamSmart campaign
Year 2
- explore scam prevention guidance for employers
- work to improve the pensions consumer journey including a review of guidance on member communications for scam-prevention messaging
Year 3
- continue and review for new opportunities
Most savers are in schemes providing gold-standard protections
Year 1
- monitor, nudge, and set expectations that schemes under TPR's master trust and relationship supervision are Pledge compliant
- monitor and update the Trustee toolkit, so that it is reflective of Pension Schemes Act 2021 and PSAG Threat assessment if required
- encourage consolidation of small schemes
- review data sharing agreements with MaPS and FCA and revise where needed
- analyse amber flag data provided to MaPS and continue to have open dialogue on trends
- work with PSAG partners to consider developing consumer protection messaging around SIPPS and SSASs
Year 2
- introduce policy/guidance changes as per insight provided by amber flag data
- work with the biggest administrators so that they voluntarily adopt best practice on transfers
Year 3
- include Pledge compliance as an expected part of the ‘scheme oversight and customer service’ Value for Money assessment for trust-based schemes subject to consultation findings
- as schemes consolidate, explore Chair accreditation/ professionalisation subject to evidence and policy development
Schemes report potential fraud activity to authorities; creation of a hostile environment for those seeking to defraud savers using improved data
Year 1
- continue to investigate and prosecute scam cases, issue penalties and suspend and prohibit trustees
- support the continued (annual or every two years) development of a new PSAG strategic threat assessment
- scope and develop senior-level strategic partnership with key organisations across PSAG family to facilitate enforcement
- encourage industry to report fraud, including reporting red flags
- engage alongside PSAG partners with other relevant proposed legislation to protect savers including the Online Safety Bill
Year 2
- set up a new dedicated and fully funded PSAG scams hub to co-ordinate intelligence and direct fraud disruption and prevention activity
- engage in 18-month review of Pension Schemes Act 2021 regulations with supporting data to improve legislation where possible
- open a regulatory sandbox to allow industry to test solutions for scam prevention and intelligence gathering
Year 3
- continue to create hostile environment by using improved data to support PSAG partners law enforcement efforts
The actions listed in our plan to combat pension scams are our inputs to tackling the problem. They are not our measurements of success. Throughout the delivery of this strategy, we will track and measure our success against the desired outcomes – all of which help to keep savers protected from scammers. Some outcomes may require a range of qualitative and quantitative measures. Where baselines are not held, we will establish these and adapt our approach according to available data.