Summary of a review into the threat of pension scams.
Published: 15 June 2022
Background
The Pensions Regulator (TPR) and the National Fraud Intelligence Bureau (NFIB) have jointly reviewed the threat of pension scams.
To get an up-to-date picture, we have used a variety of sources including:
- Action Fraud victim reports
- regulatory and law enforcement partners
- industry experience
Getting industry’s view is essential as it provides the latest view of the risks they are identifying when members seek to transfer.
Recent limits on the statutory right to transfer are a significant change that will make offending at the point of transfer more difficult. Industry will play an important role in how successful these measures are.
Before the 2021 Transfer Regulations came into force we invited industry to complete a questionnaire to gather views of the current threat. We received 16 written responses and carried out four follow-up discussions to gather more details.
Summary of industry responses
Pension scams definition
There is a lack of consensus regarding the definition of a ‘pension scam’. Although some within industry use the Pension Scams Industry Group (PSIG) code of best practice definition, it is recognised that this definition can encompass a range of harms to savers. Some would like to go beyond the scam definition and include any activities that may lead to poorer outcomes for savers. In contrast, the lack of reference to the offence ‘fraud’ is seen as a barrier by some as it adds to the opportunities for a wider interpretation. There is also concern that the term ‘scam’ has the potential to trivialise the issues faced by victims.
Scale of pension scams
Respondents acknowledged that scale is difficult to calculate and comparison between industry members remains a challenge.
Industry experience understandably varies depending on the nature of their role in the sector, for example a large administrator compared to a trustee of a single scheme. One respondent estimated that less than 5% of transfers raised concerns, while another indicated up to 50% of transfers may lead to poorer member outcomes. It is highly likely that this disparity is due to a difference in defining the problem rather than a like-for-like comparison.
Respondents also noted that there is often a delay of several years between a transfer taking place and a saver becoming aware that they are a victim. Relying too much on victim reporting would therefore affect assessments of the current scale.
Current trends
The trend referred to most commonly relates to increasing transfer requests to ‘international self-invested personal pensions (SIPPs)’ which look to facilitate investment overseas but through a UK-registered SIPP. Members seeking such transfers often live overseas with the transfer being facilitated through intermediaries and advisers outside the UK.
Overseas advisers are targeting members via social media platforms and then guiding them through the transfer process. Where regulated advice is required, there were a number of UK firms offering this. Although this advice was predominantly not to transfer, the member still often goes ahead with the transfer. The overseas intermediary is able to ‘coach’ the member through the process and convinces them that the transfer is in their interest.
Other current trends in the industry responses include the following.
- A general decline in pension liberation offences.
- High or unsubstantiated fees involved in pension transfers are a further harm impacting members. For some this is the main concern identified.
- Brand impersonation and cloned companies. During the COVID-19 pandemic there was an increase in the use of cloned websites to facilitate fraud. Some pension firms were also impersonated during this time.
- Communications. Cold calls appear to be in decline with social media increasingly being used to target victims. However, there are concerns that the cold call ban is being bypassed by initial contact from outside the UK and referrals then passed to UK-based advisers.
COVID-19 impact
Industry did not observe any increases in scam activity since the pandemic began. However, we note that it may still be too early to see the true impact.
Some respondents noted a drop in transfers during the pandemic months which for some also translated into a decline in identified scam activity.
Reporting
The majority of respondents were aware of where to report. However, it was recognised that having to report to multiple locations is a potential barrier to reporting and the reporting process is designed for individuals rather than bulk reports.
In general terms, there was often a disconnect between the nature and scale of concerns identified through this round of engagement and what had previously been reported, which suggests under-reporting.
Impact on industry
Prevention activities, such as implementing due diligence good practice, have financial and resource impacts on providers. Respondents recognised a balance is needed between ensuring member safety and providing timely, quality services that meet best practice standards.
Key findings based on all inputs
The findings from all inputs to the assessment show that the threat to pension savings continues to diversify, both in terms of the overarching methods used to access them and the specific tactics used. Some losses have been in the millions, but the average loss to each victim is around £75,000 (Action Fraud 2021).
In broad terms there are three categories of harms to members:
- pension liberation – members under 55 persuaded to transfer in order to unlock savings, often resulting in total loss of assets and a large tax bill
- pension-related investment scams – members that access pension savings, are already drawing funds or have retirement savings outside of a pension product are potentially at risk from a wider increase in investment scams
- poorer outcomes linked to high costs and charges and unsuitable advice
Pension liberation
Pension liberation is in continued decline. While there are still some examples of attempted liberation, reporting in this area mainly relates to historical offending.
Pension-related investment scams
Retirement savings are increasingly vulnerable to investment scams. Developments in this area also increase vulnerability to specific threats, such as cloned firms and recovery fraud, where victims are targeted again with false promises of assistance in retrieving their lost funds.
High fees and unsuitable advice
The ability to generate high fees has the potential to incentivise unsuitable advice. The suitability of defined benefit to defined contribution transfer advice has improved. However, unsuitable advice is still at an unacceptably high level.
Communication methods
Issues with members being targeted to transfer to international SIPPs presents a unique regulatory challenge that is disproportionately represented in transfer activity of concern experienced by industry. This issue is complicated by the involvement of oversea advisers that are not subject to UK regulation or legislation such as the cold call ban.
Remote communication is integral to pension scam offending and provides opportunities for offenders to conceal their identity. There is a mix of methods for establishing and maintaining contact with a victim. These include:
- phone
- pension review websites
- investment comparison websites
- social media platforms
- advertisements
Cold calling has become less relevant as a method of initiating contact. However, telephone contact is still significant in progressing a scam. The use of the internet continues to grow in significance.
Working together
This summary provides an up-to-date overview of the threat that pension scams pose. We know threats evolve over time, the nature of the offending is complex and the picture reported is incomplete and often delayed.
Scheme trustees, administrators and service providers are the first line of defence against pension scams. Their observations and reporting improve our understanding of the current threat and provides us with an early warning of changes in scammers’ tactics, allowing the right interventions to be made at the right time. We will continue to work with industry and partners to identify scam activity, share intelligence, raise public awareness, and seek ongoing solutions to combat pension scams and protect savers.
We encourage the industry to continue to:
- get to know the warning signs of a pension scam: this will help with assessing the level of risk when members make transfer and cash drawdown requests
- regularly warn members about the risk of scams
- carry out the legally required checks when dealing with pension transfer requests
- report concerns about a scam to the authorities and communicate this to the scheme member
- make the pledge to combat pension scams
We’ll continue to work closely with partners as we monitor trends in scam activity and feed into wider legislative developments that may help to combat pension scams such as the Online Safety Bill.