How advisers can help protect pensions against con artists

As one of LM Montgomery's characters once said, she always reckoned the devil to be a handsome fellow, or else he wouldn't cause so much trouble.

Same applies to pension scammers: they appear friendly, professional and knowledgeable and their success is in making people trust what they have to say. 

"The fundamental message to take away", says Ben Fairhead, partner at international law firm Pinsent Masons, "is a need for greater public awareness to discourage individuals from transferring their pension funds into scams in the first place".

The question is, while this is being worked on, how can advisers help spot where potential con artists are sniffing round advised clients?

Reject the review

The first thing, according to guidance from the Financial Conduct Authority and The Pensions Regulator, is to encourage clients and prospective clients to 'reject the review' offer when it is a cold call, mailing or email. 

Fiona Tait, technical director for Intelligent Pensions, explains: "Government bodies will never proactively contact people to offer a review, and people's own financial advisers must have a signed agreement in place allowing them to act on a person's behalf."

Encourage individuals who might have a 'free pensions review' letter or communication to check if it has come from a legitimate source. If in doubt, individuals should contact scheme providers or advisers to double-check.

We accept, though, that for the unsuspecting pension saver for whom the term 'Ssas' means nothing, it could be easy for persons of malign intent to persuade that person they need a Ssas to invest in what the consultation terms 'inappropriate investments'. AMPS response to the government's consultation

"It is always wise to be cautious if dealing with a company or investment you haven't heard of," says Ms Tait. 

Ben Fisher, consulting actuary for Xafinity Punter Southall, agrees. "Many of the scam cases we see originate with a cold call, often offering a 'free' pensions review to members of a defined benefit (DB) scheme."

For him, the implementation of the cold-calling ban cannot come quickly enough. "As each week passes, individuals will be losing their pension saving to scammers, which in many cases could have been prevented had the ban been put in place already."

Transfers

One of the biggest problems is around pension transfers, so it pays advisers to keep their eyes peeled whenever potential pension transfer business comes their way.

Pensions liberation - attempting to get someone to cash in their pension early regardless of the tax events this triggered - became a thing of the past when pension freedoms came into force in April 2015 and everyone could access their pension pot at 55.

Of course, there are exceptions made in law for those under 55 who may be in desperate need of getting their pension money early, for example if they have a terminal illness diagnosis. But for the majority of people who are able to get their pension pot at 55, the con artists have turned to the pension transfer market to scam their crust.

And this is a potentially lucrative market for pension thieves.

Earlier this year, data from Origo's Options Transfers showed a drastic rise in transfer volumes through the service in the years since the pensions freedoms were announced: 

• January to December 2014: £17.3bn.
• January to December 2015: £21.5bn.
• January to December 2016: £24.3bn.
• January to December 2017: £30.9bn. 

Transfers into self-invested personal pensions (Sipps) dominated the pension transfer market in 2017, accounting for 51 per cent of all transfers in through the Options Transfers service.

Mark Smith, chief operating officer for Mattioli Woods, strongly advises any decisions made on transferring existing pension benefits - of whatever nature - should be "made in conjunction with a financial adviser, who can give regulated advice on the benefits and potential downside of undertaking such an investment".

Thankfully, evidence suggests the majority of transfer requests are carried out with meticulous checking by providers and advisers and, in the case of defined benefit (DB) transfers of pots worth £30,000 or above, by advisers with specialist pension transfer qualifications.

But there are instances being reported of people's money being transferred to dodgy or inappropriate schemes, with the result they lose thousands of pounds of their hard-earned pensions.

And while, as Mr Smith points out, "individuals should always be wary that, if they have an unsolicited approach for an investment or to transfer their existing pension assets, then it is quite possibly part of a scam", it is also behoven on the financial adviser and providers to raise red flags and double-check all transfer requests.

A survey carried out by the Pensions and Lifetime Savings Association (PLSA) among more than 2,000 UK adults, revealed 79 per cent of people wanted stricter rules and checks to ensure pension pots were secured.

Check but don't scare the client

The government has set out measures to crack down on suspicious schemes, as outlined in the second article in this guide, including giving new powers to HM Revenue & Customs from this April and proposing to limit the statutory right to transfer in forthcoming legislation.

This will particularly affect master trusts and small, self-administered schemes (Ssas).

But while the Association of Member-Directed Pension Schemes (AMPS) agrees with the need to ensure people's pensions are protected, it has also warned the government and industry not to throw the proverbial baby out with the bathwater.

In its comprehensive response to the government's consultation, AMPS comments: "We accept there may be concern over those Ssas which are sponsored by a newly-established employer.

"It does not mean the resulting schemes are unworthy of their registered pension scheme status, and it should not mean those schemes should carry a presumption of untrustworthiness.

It is important to check that the financial adviser is in fact authorised to give financial advice. Fiona Tait

"We accept, though, that for the unsuspecting pension saver for whom the term 'Ssas' means nothing, it could be easy for persons of malign intent to persuade that person they need a Ssas to invest in what the consultation terms 'inappropriate investments'.

"We would hope that better financial education, and crucially, provision of regulated financial advice, might serve to reserve Ssas to those who genuinely need and want them."

In the meantime, advisers and those who come into first contact with newly hatched 55 year olds could encourage people to look on HMRC's register of firms to see if any have been listed as potentially dodgy dealers. If the names match the ones given in the cold call, this is a big no-no.

Advisers also can help potential or prospective clients by encouraging them to check the FCA register for the names of people who cold-call or send spurious letters - although there are plans to restrict this to just firm level rather than list individual advisers. 

Ms Tait, comments: "It is important to check that the financial adviser is in fact authorised to give financial advice. It is currently possible to check the FCA register for individual advisers, although there are plans to restrict this to firm level in the future.

"The register will tell you if your adviser is currently authorised to offer advice and in which areas."

Risk warnings and red flags

There might be more available information for consumers, as well as help on offer from guidance services such as Citizens Advice and Pension Wise, but not everyone knows the information is out there, so they might not know what sort of red flags are flying.

Moreover, while pension providers might be more savvy when it comes to scammers after people's pension pots, there are other financial services players that need to be brought on board so there is a holistic protection put in place. 

If something new comes along and it is colourful and weird, appealing to people's greed and need, then it is probably dodgy. Peter Bradshaw

Elaine Turtle, director of DP Pensions, is of this opinion. "It is possible that, post-pensions freedoms, scammers are looking at pension money in a different way and waiting for withdrawals to take place before targeting the members.

"The cash is much easier accessed once outside of the pension wrapper, and so work could be done with investment houses and banks alongside the increasing cyber security messages that other scams are out there."

She adds: "Maybe [there could be] similar risk warnings to accessing pension benefits when withdrawals over a certain level are made from investment and bank accounts."

What to look out for when cold-called/texted/emailed

It is also imperative to help inform and raise awareness of key phrases or triggers that might indicate whether a cold call is a potential pension scammer.

14 signs of a scammer and how to defeat them

1) Is the investment looking too good to be true? Then it probably is. "The obvious one is the old adage that 'if a deal looks too good to be true, it probably is'." This is according to Nigel Chambers, co-founder of CTC Software.

He adds: "Advisers and Sipp providers need to ask when it comes to any form of investment proposition, is how those at various points in the food chain are gaining their remuneration: nobody promotes anything for nothing.

"The challenge is that those financially sophisticated enough to spot a scam are those less likely to come across one.

"By far the greater majority of the population are exposed, and are not in a position to put in place their own provisions."

2) Has this appeared on the FCA's list of known firms operating scams? Has the client or individual checked the FCA's ScamSmart site?

3) Is the firm or caller prompting you to make a quick decision by recommending immediate action? The FCA and others have warned about these high-pressure, time-sensitive tactics. John Lawson, head of financial research for Aviva, states: "Any reputable pension provider or adviser understands that choosing what to do with your pension savings is a huge decision.

"They should never put people in a position where they are making a decision under duress."

4) Are they promising lucrative returns from something out of the ordinary, such as teak plantations in Brazil or Kosovan marble? According to Peter Bradshaw, national accounts director for Selectapension: "If something new comes along and it is colourful and weird, appealing to people's greed and need, then it is probably dodgy."

5) Is the firm offering to send someone round? Ms Tait explains why this might be dodgy: "Some scammers offer to send people to pick up or deliver documents the same day. If you did not request this, it is unlikely to be a good idea."

6) How did they get your contact details? Mr Bradshaw says: "You need to ask this question. How did they get your information?" If they cannot provide a legitimate or trustworthy response, they are not likely to be legitimate or trustworthy.

7) Ask yourself: Did I request information on this product or investment? 

8) Does the promoter have a web presence and is it registered at Companies House? Does it have a trading track record? Do the directors have a stable track record? 

9) Will the advice and investment be covered by the Financial Services Compensation Scheme (FSCS)? Martin Tilley, director of technical services for Dentons Pension Management, follows by saying: "People should ask if they genuinely understand how the investment will yield the promoted return, and have they been able to establish from independent means (not the promotional material provided) that the information is factually accurate, and any data provided is genuine?"

10) Are the promoters pushing you to access your pension savings before 55? "Avoid them," says Mr Lawson.

11) The friendship test: Don't let a friend or relative encourage you to invest without investigating it fully. They themselves may be the unwitting victims of a scam.

12) It's "guaranteed". It isn't. 

13) The investment cites 'limited availability' or loopholes. Vince Smith-Hughes, retirement expert for Prudential, elucidates: "Beware of any investment offering that focuses on 'limited availability' or 'legal loopholes'."

14) The glossy brochure. Mr Smith-Hughes says: "Don't be fooled by professional-looking websites or brochures. On face-value many scams are convincing."

There are also useful hints and tips available on the FCA's ScamSmart website.

Awareness and audit trails

Helping to raise awareness and increase reporting of scams or potential scams is vital. Mr Bradshaw comments: "All you can do is raise people's awareness. 

"The coverage of scams can reflect potentially badly on any industry, this is true, but if this raises awareness of how these things operate, then people can spot it and stop it."

One way to do this, he believes, is for advisers and those providers dealing with valuation requests, to ask a couple of simple questions that might get the prospective client or individual thinking. 

He explains: "When I was trying to get a valuation from my financial adviser, I thought it would have been helpful if the person on the other end of the phone asked questions such as 'are you trying to do a transfer? Who is it with? Are they registered and regulated?'"

The provision of information needs careful consideration, as overloading pension members with negative comment and continuous reference to scams could be damaging. Elaine Turtle

It is also important to keep things simple, he advocates. "In support of any advice, it is good to have documentation that is simple to understand, and to have this in an electronic form whereby any reports produced for financial advisers is automatically archived so there is an audit trail of what has been analysed and what the recommendations have been."

Xafinity Punter Southall's Mr Fisher, advocates this in particular. "Trustees need to be comfortable that their administration team have efficient and up-to-date processes in place to ensure everything is being done to identify a potential scam.

"For example, Xafinity proactively contacts the member to talk to them about the circumstances around their decision to transfer out. This can help identify any warning signs of scam activity that might not be present in the transfer paperwork sent to the administrator."

Education

The PLSA research highlighted that people might not always know what is a scam, and what is mis-advice, or what is simply market risk (see Table 2). 

Commenting on these findings, James Walsh, policy lead for engagement, the European Union and regulation at the PLSA, says: "Consumers struggle to identify pensions scams and are keen to see stronger checks."

Therefore, while it is important for advisers to help raise red flags, provide simple information and direct people to free and impartial guidance, ultimately education is at the root of everything, says Ms Turtle.

"There is much to be said for continuous education," she explains. "Most pension providers will provide a suite of information leaflets explaining scams, such as those from The Pensions Regulator (TPR), HMRC and the Financial Conduct Authority (FCA).

"However, the provision of information needs careful consideration, as overloading pension members with negative comment and continuous reference to scams could be damaging, and lead members to wonder about the safety of existing pension arrangements, which are not at any risk."

This opinion is backed by Nigel Bennett, sales and marketing director for InvestAcc Pension Administration Limited, who says: "There needs to be more emphasis on financial education in schools and in the workplace, helping individuals develop life skills, such as the ability to spot scams."

simoney.kyriakou@ft.com