Almost a decade after a wave of pension liberation tax schemes hit the UK retirement sector, fraudulent activity is still having a detrimental impact on savers – costing schemes £6bn every year, according to the latest analysis.
Most industry efforts have centred on protecting consumers from investment scams that have multiplied in the era of freedom and choice and high transfer values from defined benefit schemes.
But while investment fraud accounts for a large proportion of total losses in the UK – £2.88bn a year according to audit, tax advisory and risk firm Crowe – schemes and administrators are themselves targets in fraudsters’ attempts to misappropriate pensions.
A further £1.68bn is lost to payments fraud in private sector schemes, with £330m extracted from administrators (and impacting schemes’ costs) each year via payroll and purchasing fraud.
Public sector plans lose an estimated £1.15bn a year, mostly due to payments fraud.
The Crowe report, compiled with the University of Portsmouth Centre for Counter Fraud Studies, found that instances of fraud exploded in the years leading up to and following the introduction of freedom and choice.
In fact, the number of cases of fraud committed by pensioners, against pensioners, and in liberation schemes (as measured by Action Fraud) was down on its 2014 height of 1,788.
But the stakes were higher, with the average value involved now standing at more than £30,000, with peak values at risk reaching almost £65,000.
Jim Gee, partner and head of counter fraud at Crowe, comments: “Fraud undermines the value of income for people at a crucial time of life when sources of income are more limited and the chances of financial recovery are reduced.”
He calls on schemes and administrators to review the gaps in their processes that allow cyber crime to succeed, and to improve member awareness.
A Crowe survey in 2019 found that while 33 per cent of pension schemes had received cyber crime scenario-based training, 25 per cent did not have a plan in place to respond to an attack.
“It is time for the industry to review whether it is doing enough,” he continues.
“Think of the extensive protection the banking sector places around comparatively small sums held in current accounts versus the less extensive protection around much larger sums in pension pots. This simply does not add up.”
angus.peters@ft.com
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