A policy paper from the PPI, published yesterday (May 19), found data available about the number of scams taking place across the industry, as well as the amount lost in each scam, did not offer a comprehensive view of the true scale of the issue.
It warned this made it harder to address it.
According to the PPI, low levels of reporting made it difficult to assess how the introduction of the pension freedoms in 2015 may have exacerbated the problem.
But it found pension freedoms caused a clear shift in the way scammers marketed their tactics.
Before pension flexibilities came into force, most scams focussed on pension liberation but now they focus on investments.
The PPI found this particularly worrying as it made it harder to combat the issue as funds often leave the regulatory landscape of pensions.
Investment scams include both transfers to pension schemes that invest inappropriately, as well as flexible access to cash from defined contribution pots in order to invest outside of the pensions landscape.
The former is considered a pension scam, meaning schemes and regulators have powers to intervene, however because the latter occurs outside of the pension system, intervention is beyond the industry's and regulator's remit.
Read our investigative piece: How the pension scammers are getting away with it
Scams generally offer above average investment returns, often in overseas investments or alternative assets which average pension savers are less likely to understand in terms of value and risk.
They are also more likely to operate via Sipps, small self-administered schemes (Ssas) and qualifying recognised overseas pension schemes (Qrops).
Charles Randell, chairman of the Financial Conduct Authority, admitted last year the introduction of the pension freedoms should have been planned better to avoid pension scams.
At the time he said: "A very major change of policy like this needs a substantial period of planning and testing, so that all the necessary safeguards against skimming and scamming are integrated before it is launched.”
Before pension freedoms were introduced, the government categorised pension scams as “attempts to release funds from HMRC registered pension schemes in an unauthorised way” but this has since been broadened and now includes persuading people to access their funds to invest inappropriately.
The PPI also said scammers changed their processes following the cold-calling ban in January 2019, with victims more likely to be caught online nowadays.
In 2018, 54 per cent of individuals had been contacted by potential scammers via online sources (emails, professional looking websites and social media), an increase from 45 per cent the year before.
Ian Browne, retirement expert at Quilter, said: “Being alert to the risk of pension scams is absolutely critical. The government’s decision to outlaw pension cold-calling sent a clear message to pension savers: if you receive a call out of the blue about your pension, hang up.
“But it has resulted in scammers moving online to target vulnerable people through internet searches, social media and email.
“Although the authorities take steps to intervene where a scam is identified, they are engaged in a perpetual game of whack-a-mole. When they deter cold-call scam tactics, the same fraudsters pop up online.
“This is a particular worry for younger savers, who may have been less susceptible to telephone-based scams, but are used to transacting online and may be lured into scams on the web or social media.”
The Covid-19 effect
The coronavirus crisis has presented an opportunity for scammers.
According to Action Fraud, there was a 400 per cent increase in coronavirus-related fraud reports from February to March as opportunistic scammers attempted to exploit savers experiencing serious financial strain and looking to access their savings.
Research from the All-Party Parliamentary Group on pension scams showed that with more people staying at home, in line with social distancing and lockdown restrictions, it is more likely that pension savers will be contacted by scammers via phone or online.
In response, The Pensions Regulator, Financial Conduct Authority and Money and Pensions Service issued a joint statement urging people not to make rash decisions with their pensions in the wake of the pandemic.
Mr Browne said savers more than ever needed to be cautious about offers to switch their pensions to “safer” investments or unsolicited contact claiming to be a government email or text.
He said: “The pension schemes bill currently making its way through parliament makes some provision for blocking transfers where there is risk they may be fraudulent.
“At present, although pension providers can warn people against transferring to a suspect operation, the customer has a statutory right to transfer and can insist on switching. Once the bill passes, it will add an extra layer of protection.”
amy.austin@ft.com
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