Regulators and policymakers must reform and tighten up regulations around financial fraud to better protect millions of people who are at risk.
Pension scams have flourished since the Pension Freedom reforms of 2015 and, with the new coronavirus outbreak, there have been reports of a further rise in scams across the board, from fraudsters impersonating HM Revenue & Customs to investment and pensions scams.
The concern is that as people have seen their incomes dry up and their investments plummet, they may be more susceptible to fraudulent offers touting attractive returns.
Indeed, from ‘smishing’ to ‘phishing’ and ‘vishing’, Action Fraud has reported a 400 per cent increase in virus-related financial fraud in March alone.
Last week 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.
In this week’s (April 7) business plan the FCA said it is particularly concerned about retail investments and the harm caused by fraudulent and high risk illiquid investments and this year will prioritise helping consumers make better investment decisions.
It will launch an awareness campaign to be run over five years to the tune of £2.3m levied on fee-payers.
More is needed
FTAdviser spoke to several consumers and people claiming to be victims of fraud, who said they were not aware of the regulators’ scam smart campaigns, so were not in a position to effectively protect themselves. ‘Caveat emptor’ is not working.
Read our investigative piece: How the pension scammers are getting away with it
By the FCA’s own admission, former chief executive Andrew Bailey, now governor of the Bank of England, told MPs in a hearing last month the pension freedoms had been introduced too quickly and the regulatory system has been in a 'catch-up process' since.
This is somewhat evident in the regulators’ view of the way scams are carried out. According to the FCA and TPR, fraudsters often lure people with exotic investments and “the carrot of superior returns”, or early access to cash, but we found this was not necessarily the case.
People we spoke to said they were persuaded by more realistic-sounding promises of a secure retirement and the ability to pass their pensions on to their children.
In 2019, 5m people across the UK were identified as being at risk of being targeted for their pensions, equating to 42 per cent of pension savers. In the year before, victims of pension fraud lost an average of £82,000 each.
Advisers meanwhile have seen the cost of making up for these losses shoot skywards, with some firms reporting annual rises in their FSCS levy of up to 400 per cent, alongside the ever increasing burden of getting their professional indemnity insurance renewed.
Neither advisers nor consumers are happy with the way the system currently works, so is there a better way?