Sometimes you get asked a question and the knee jerk reaction is to dismiss it out of hand as just a wee bit daft. (My wife says she treats everything I ask in that way!). But with a bit more thought the penny drops and the question actually has some depth to it. That’s the process my brain went through when I was asked the question “So when the second hand annuity market comes along won’t that offer new opportunities for fraudsters and money launderers?”
You see I had fallen into the trap of thinking pension fraudsters were all about pension liberation and unregulated investment opportunities through pension freedoms. But that’s the thing, fraudsters don’t stick to just one scam. They are always on the look out for new “opportunities” to exploit the desperate and the unwary and the more unlikely it sounds the more likely it is that they will get away with it. For anyone who has been following the Pensions Advisory Service #protectyourpension campaign you will know that pension scams now come in a variety of guises.
Might there be a problem about to materialise? Let’s start by looking back to October’s NAPF (I will get used to calling it PLSA shortly) conference at which the Pensions Minister made it clear that her department has a number of priorities. Given what she has already identified as being priorities (most importantly Auto-Enrolment for Small/Micro-Employers, and dealing with Scams) it wouldn’t be surprising to see Second Hand Annuities added to CDC as amongst those ideas of the previous Pensions Minister that are kicked into touch.
But let’s assume Second Hand Annuities get air time and people are allowed to start selling their annuities. As an industry we have sadly become used to financial frauds and we have seen how the frauds and the fraudsters evolve. Fraudsters adapt to new developments i.e. they follow the money. And there would be a massive amount of money in play here.
One statistic that I keep coming back to that reinforces how frauds are evolving is the report from Action Fraud that shows that in May, the first month following the new Pension Freedoms becoming available, members of the public reported losses of £4.7m compared to £1.4m in April and £932,000 in March. Whilst it is not possible to say that this is a direct result of member availing of the new Pension Freedoms being defrauded (it’s too early for that sort of analysis) the fact that the amount of reported fraud has tripled in the space of a month is staggering.
So with this in mind is it unreasonable to think that with people rushing to cash in annuities (You think rush might be over egging it – look at what happened in April when pension freedoms came in) that fraudsters will not look at this as a new opportunity? People who cash in their annuity will have to do something with the money they receive. Whether the scam of choice will be through “alternative” investments or some other “attractive” offer which will (yet again) prove too good to be true, you can bet that if we are thinking about it then so are the fraudsters.
But there is a new angle to this too. Money laundering. Everyone who has been through their money laundering training knows that the criminals end game is to turn the dirty money into clean money by placing it into the financial system and taking it out as legitimate cash. With a secondary annuity market there is an opportunity to do this. Whilst the driver for selling the annuity will be the annuitant, annuity providers will need to be vigilant and make sure all checks are done on the purchaser.
Not such a daft question after all!
An article by Dalriada’s Mike Crowe, where he outlines why fraud and money laundering pose a very real threat to the second-hand annuity market, was also published in Professional Adviser.