One in 12 transfers may have been subject to fraudulent activity, a new report has found. The figure has fallen from last year’s corresponding study, which found potential scams in as many as one in nine cases.
The most frequent flag for fraudulent activity involved unauthorised advisers, which accounted for 33 per cent of cases, while 20 per cent of scams identified featured cold-calling, according to the report by consultancy Xafinity.
You can’t be expecting the trustees of these schemes to be policing every aspect of this
Nick Moser, Taylor Wessing
Incidents involving recognised fraudsters, members without linked employment and couriered documents, a tell-tale sign of scam activity, also registered in the investigation.
Banning cold-calls is not enough
The figures were sourced via telephone conversations between Xafinity and scheme members, instead of the traditional paper-based approach.
Ben Fisher, consulting actuary at Xafinity, was positive about the fall in registered scams. However, he cautioned that this year’s survey took in a wider range of responses than the previous year’s report.
“Even though the regulator is doing a lot to raise awareness, and a lot of trustees that we work with are doing a lot to raise awareness, there is still a significant amount of scam activity out there,” Fisher said.
He heralded the government’s ban on cold-calling as a necessary tool in the fight against scam activity, but tempered expectations over its effectiveness in deterring criminals.
"The cold-call ban will play a large part in cutting these non-regulated [independent financial advisors] out of the process and stopping them getting access to members… but these people will unfortunately find a way to get round these bans,” he said.
One such method of circumventing the cold-call ban exploits the industry’s reliance on complicated paperwork. More than decreasing member engagement, Fisher argued that this approach actually facilitates pension transfer fraud.
“There’s such a reliance on an old-fashioned way of working, which is just to review the paperwork that gets sent into administrators,” he said.
“Scammers will offer to help members to fill out the paperwork… of course the scammers know exactly what people will be looking for for fraudulent activity, so they’ll fill in the form in such a way that it shows no tell-tale or warning signs at all,” Fisher said.
The right to say no
Pension freedoms have added to the burden of responsibility placed upon trustees. Despite their popularity, they have demonstrably opened up a new stream of revenues for fraudsters.
“I think that a lot of scams are taking advantage of the difficult position that pension scheme trustees find themselves in,” John Gordon, partner at law firm Ashurst, said.
On the one hand they have the duty to protect the members’ benefits and to act in the best interest of the members, which means they should always look to protect them from the risk of scams, he explained. But trustees also have a duty to carry out a transfer where a member has a legal right to it, either under the scheme rules or under statute.
Transfers carried out under statute must be completed within six months. The Pensions Regulator does not have the authority to permit schemes to reject statute-protected transfer requests, but on certain occasions may allow a scheme to overrun this deadline.
“If there were a clear system that allowed trustees to refuse to make transfers where they had strong suspicions of fraudulent activity, then the position would be easier for trustees,” Gordon said.
Follow the victims, not the criminals
Nick Moser, head of UK restructuring and corporate fraud at Taylor Wessing, has personal experience of an attempted pension scam.
“I was working on pension fraud, interviewing trustees who were involved in pension fraud. At that point, I got cold-called,” he said.
Educating targets of fraud is a surer route to combating illicit practice than trying to tackle the sophistication and agility of criminals, according to Moser.
“Focusing on what they do too much... can be a little bit like a game of ‘whack-a-mole’. You can bash it down on one side and they pop up somewhere else,” Moser said.
Government reaffirms commitment to cold-calling ban
The government has announced that it will introduce its long-promised ban on pensions cold-calling “when parliamentary time allows”, putting to bed concerns that a second consultation would further delay the legislation.
Moser argued that the government must take responsibility for preventing easy access to members, and training regulators and schemes in preventative action.
“You can’t be expecting the trustees of these schemes to be policing every aspect of this,” he added.
