300 Scots hit by pension scam as advice gap persists

Raising awareness of the risks of pension liberation and other scam activities has been high on the industry’s agenda since the introduction of freedom and choice last April.

Savers choosing to take up the freedoms and access their pension from age 55 may have stepped into the firing line of increasingly sophisticated fraudulent attempts to appropriate their cash.

There is a feeling out in the industry that it is quite difficult to find justification on the basis of law to stop transfers going through

Ben Fairhead, Pinsent Masons

A code of practice to help schemes battle evolving pension scams, released by the Pensions Liberation Industry Group last year, alongside the Pensions Regulator’s nationwide Scorpion awareness campaign, has helped shore up scheme and member defences, but the large-scale fraud in Scotland is evidence of the sustained ambitions of pension fraudsters.

Vulnerable individuals

Police Scotland confirmed this week it is conducting an investigation into the activities of an organised crime group targeting the pension savings of more than 300 people.

Detective Inspector Graeme Everest of Police Scotland said: “The majority of the victims appear to be individuals who have recently been made redundant or have been vulnerable because of their financial situation. Referral payments were also used as inducements.”

He added: “The value of the current investigation is in the region of £10m, although it is thought that the actual sums are far higher. It is a difficult one to place an exact figure on, as many individual victims will not realise that they have been defrauded.”

Everest said the true extent of the crime may not surface for a number of years – until victims reach retirement – and while the specific investigation is focused on one group, the force believes there are many others exploiting similar models.

“Police Scotland would recommend anyone who considers releasing their pension details to seek advice from a recognised financial adviser before they do so and to be aware that there may be tax implications involved,” he said.

Pensions a 'soft target'

Malcolm McLean, senior consultant at Barnett Waddingham, said news of fraud on this scale was “worrying”.

Pension liberation and scam activity long precedes the onset of freedom and choice, but McLean said more flexible access to previously locked-up savings has made pensions a “soft target” for fraudsters.

“The pension freedoms are not themselves the cause,” he said. “All of us – the industry, the government – need to continue to bang the drum to raise awareness.” 

McLean said the Financial Advice Market Review, launched in August 2015 by the Financial Conduct Authority, should help clarify the “grey area” between advice and guidance for trustees, providers and employers, who are keen to act in the best interests of members but are often hamstrung by fear of straying into advice territory.

“The whole area needs sorting out, tightening up in some way,” he said. “But it’s not easy to do – the reality is many people don’t want to pay for advice and therein lies the problem.”

Ben Fairhead, partner at law firm Pinsent Masons and PLIG member, echoed McLean’s concerns over the guidance gap. “There are an awful lot of gaps out there in people’s knowledge that can be exposed by unscrupulous people,” he said.

However, Fairhead added that current law on scheme transfers means providers’ and trustees’ decisions to process member requests are often less than straightforward.

“There is a feeling out in the industry that it is quite difficult to find justification on the basis of law to stop transfers going through,” he said.