Pension scams are a growing and wide-ranging problem facing consumers. Around four years ago Phoenix became aware that policyholders were being contacted by fraudsters, trying to trick them into losing their life savings.
Before the introduction of pension freedoms, the fraudsters focused on pension liberation.
Often, desperate savers were encouraged to release a proportion of their pension savings before their retirement date, without highlighting the significant tax charge they would be liable for or the extortionate fees charged by the fraudsters for doing so.
The government must remain committed to this process; only then will we come close to having a handle on pension scams
Since then, we have found that the tactics fraudsters use are constantly evolving, and tend to take advantage of industry changes and economic trends to target pension savers. Recently these have included pension freedoms and Brexit.
Using myriad methods including face-to-face contact, online marketing, texting, social media and email, fraudsters are promoting schemes as investment opportunities, complicated pension arrangements such as self-invested personal pensions, small self-administered schemes and overseas opportunities.
This cold contact, where the customer has no existing relationship with the provider, shows no sign of abating.
The stats on scams
We carried out market research earlier in the year, which found more than 26 per cent of UK adults have been cold-contacted about their pension, up from 22 per cent a year earlier.
The percentage of UK adults that had been cold-contacted about their pension in the last six months was also up from 16 per cent to 18 per cent.
We asked respondents how they had reacted to being cold-contacted, and a worrying 7 per cent of UK adults said they had released some or all of their pension savings as cash as a result of this contact.
Another 14 per cent said they had contacted the person or organisation sending the message, while a further 15 per cent had considered doing so.
Most concerning is the relationship between cold-calling and scams, as we recognise that unsolicited contact contributes to consumer detriment.
Fraudsters’ marketing tools look so convincing that it can be difficult for consumers to distinguish a legitimate opportunity from a scam.
What can be done?
In order to stop people from losing their life savings, urgent action needs to be taken to tackle this very serious issue.
As a first step, pension providers must be empowered to act in order to protect their policyholders.
The current rules, along with the Hughes v Royal London High Court decision, make it very difficult for us to prevent potentially fraudulent pension transfers.
In response to the court decision, which considered that “relevant earnings” could be from any source, the Pensions Ombudsman noted: “It seems likely that most transferring members will meet [the earnings] requirement so, beyond verification of earnings and the provision of risk warnings, trustees and administrators will be conscious that under current legislation they cannot refuse such a transfer – even if they have significant concerns that it may be for the purposes of pension liberation.”
Government role is key
The government’s intention to restrict the scenarios where there is a statutory right to transfer, to where the receiving scheme is either authorised by the Financial Conduct Authority or where there is a ‘genuine employment link’ with ‘evidence of regular earnings from that employment’, is therefore a step in the right direction.
We have also welcomed the government’s proposal to ban pension cold-calling, and believe it must stay committed to introducing this.
However, this ban should be extended to include all forms of electronic, written and face-to-face communications, not just telephone calls. We also believe that for the ban to be truly effective, consumers must actually be aware it is in place and know how to report scams.
As we reflect on how we can protect savers’ pensions, the consultation process launched by the government at the end of 2016 has the potential to block many of the routes pension scammers use to commit fraud.
The government must remain committed to this process; only then will we come close to having a handle on pension scams.
Danny Dowd is head of retirement propositions at Phoenix Life
