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?
Victims told us they would like to see clearer warnings from government or providers - any kind of intervention - at the point the pension is transferred out. They want to be told 'don't do this' at some point in the process so that it becomes clear to them that this might not be the sensible idea they had been convinced - by (rogue) regulated financial advisers - it was.
They also said they wanted the FCA to do more to crack down on scammers earlier on and that there must be better cooperation between authorities policing the unregulated and regulated spaces, so tie-ups between unregulated firms and advisers can be detected earlier on.
Adviser Ricky Chan, director at IFS Wealth & Pensions, went further to say the regulator should put an outright ban on high risk unregulated products.
He said: “The issue is that these unregulated and extremely speculative investments, which typically are storage pods, car parking spaces, development in the Caribbean etc., were and are clearly unsuitable for pension funds but the FCA has resisted an outright ban for no good reasons.
“Apart from greed, I cannot see why any prudent adviser or investor would look to invest in these, so a ban should be the only option as this has led to an increasing number of Fos & FSCS complaints and compensation.”
The authorities have said they are doing everything they can to crack down on rogues and outright scammers but the problem is they rely on the regulated entities to play gatekeepers and the consumers themselves to safeguard their money.
However, there are signs the regulator's messages simply are not reaching their target audience and consumers want more intervention in the process of selling financial products.
The victims agreed something more radical needs to be done as experience has shown that, by the time the regulators are in a position to act, it is often too late.
The FCA was invited to respond but declined to provide any new comment on scams in response to our investigation.
carmen.reichman@ft.com
