PensionsJun 27 2017

Ways to stamp out pension scammers

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Ways to stamp out pension scammers

Pension scams take many forms and are constantly evolving. The scammers have greed and time on their hands to plan new ways to attack hard-saved pension funds. In theory, pensions should be one of the hardest sources of funds for scammers to get their hands on, but this hasn’t deterred them and I can’t see that changing anytime soon. Pension pots are often the largest savings pot a person will accrue during their lifetime, so it is very appealing to scammers even if only a few are taken in by them each time.  

Pension freedoms threats

Pension freedoms are great for many, but the ability to access the whole pot gives the scammers another opportunity to get their hands on victim’s monies. There is no advice requirement to access the funds, although providers will deliver additional risk warnings to those accessing funds without advice. These warnings are unlikely to be sufficient if the promises made by scammers have been believed by the client. 

The pension freedoms won’t be the only change in legislation that brings additional risks to clients; new threats are appearing every year. Simply put, it means the industry has to constantly try to outwit the scammers and educate consumers on the risks. 

Rules not guidance

One area that has been the bane of providers is monitoring and vetting the investments that clients and advisers want to make into pensions. This was made worse by the removal of the permitted investment list and all of the providers were left to decide what they wanted to accept within the taxable property rules. Not only does this create an uneven playing field, it gives the scammers a way to tempt clients away from reputable providers by offering investments that sound more exciting, but may well result in the loss of the whole fund and even a tax charge at the end of it. 

Unlike many, I would welcome more rules and regulations, because guidance is always open to interpretation, which means variations among providers. This can lead to those that are looking for weaknesses being able to target different companies in different ways, methods that can help them avoid detection. 

Not just up to the regulators

The regulators do great work, but in many cases they are on the back foot and chasing down scammers after someone has been scammed. It is difficult to get in front of the scammers as they are always looking for new ways to get around obstacles.

Scammers may also be better resourced than the regulator, which has many areas to cover and can’t monitor all schemes all the time. This is why it is down to all of us to be on our guard to try and protect end consumers. This shouldn’t be a barrier to business. 

There have been cases where transfers have been restricted to perfectly legitimate providers because the scheme is new, even though the provider is well known and well respected. Sensible precautions should always be adopted, but common sense should prevail. 

The blame game

Small self-administered schemes (Ssas) have taken a lot of the blame for scams. Yes, they have been used as a vehicle for prospective scammers over the years, but they aren’t the only problem and we shouldn’t become complacent in other areas. 

But bringing in additional safeguards for Ssas would benefit many, not just those that have or may still be targeted for scams. Not a week goes by without hearing about a scheme where the member has been left to their own devices and got into hot water with HM Revenue and Customs, or ones in danger of getting a hefty fine or two. 

Insisting on professional trustees or someone akin to the previous role of pensioneer trustee wouldn’t solve all the issues in one day, but this change would bring back some protection to members and responsibility to the sector. 

Any additional layers of protection that can be put in place should also be welcomed, and would be by the majority of Ssas professionals. It would also make it easier for ceding schemes to vet new Ssas; that has become a real issue for those who legitimately want to use this perfectly valid retirement vehicle. Ssas aren’t the problem, but have clearly been blamed for many of the issues. 

Education is key

Educating the public is the only way to prevent scammers getting their hands on the cash. It is a difficult issue, as we often see people stating they were never warned about the issues and implications – whereas we know there has been plenty of information available should the end client actually look at it. All of the paperwork that surrounds pensions can lead to important information being lost.

Making pensions a mainstream topic of conversation, rather than something that turns people off, should help. One of the best ideas I have heard recently was to get it into a soap opera storyline so people can relate. It wouldn’t help everyone, but it is another angle and the more angles covered the better. This type of education has worked wonders in other areas, but I find it hard to believe that it would be exciting enough to make it into onto teatime television. 

We know how devastating it can be to lose the whole of someone’s retirement income and even worse be subject to any unauthorised payment charges that could apply. 

Cold-calling and adverts

I wholeheartedly welcome the cold-calling ban because, as with other measures it makes it harder to target the vulnerable. However, until the public are fully aware they are not supposed to get these calls and they are in fact banned, it won’t stop the scammers from moving abroad and continuing to target those who are unaware. 

More needs to be made of the ban, so everyone knows that this type of call will be a scam and that they shouldn’t interact with the caller at all. In addition, more needs to be done to target the adverts that offer free advice and free pension reviews. These can lead the consumer to get directly in contact with a scammer and get around the cold-calling issue all together. 

A lot of these types of scams have inadvertently been encouraged by the pension freedoms and the promotion of these freedoms by the government. Having a legitimate way to access the whole pension fund, if that is suitable for the client, makes sense in some cases. 

Those in defined benefit schemes are protected by the need for regulated advice before the funds are moved into a money purchase environment, but those already with money purchase funds don’t have this type of protection. 

This might be something that needs addressing, although I suspect there will be very little appetite for compulsory advice every time someone wants to transfer or access some of their benefits. 

Share and save

There is an ongoing fear that by calling out the scammers, those in the industry could be sued. But there needs to be a way to share this information safely between providers so they can protect customers from the scammers that are known to some, but not all. 

A black list or a “clean” list could work to some degree. I would favour a black list rather than a clean list option because it is more likely that a clean scheme could become infiltrated or cloned by scammers, using the clean list status as a way to get some validity to their scheme.

In contrast, once on the black list it would be difficult to get off it, although there will need to be processes in place because mistakes do happen and complains aren’t always upheld. This might lead to a need for a “grey” or “at-risk” list for those accused, but not proven to be scams. 

Fighting back

Although we can’t stop scams and the scammers lurking behind them, we can make it significantly harder for them to operate in the pension environment. This will hopefully be a deterrent and will in the end save at least some from a poor retirement. But it can only be achieved by a multi-prong attack on the scammers and their various methods. 

The most important way to combat scammers in the long term will be education, and getting those approaching retirement to understand what is and isn’t acceptable will mean they are in a better place to make decisions when the time comes. 

That isn’t to say we should put the onus on the client, but we should recognise a professional won’t necessarily be there to protect them when they are faced with pressure from these types of people to access or transfer their funds. 

Claire Trott is head of pensions strategy at Technical Connection