As I write this we have just come to the end of 2015’s Scams Awareness Month. Scams Awareness Month is promoted by bodies such as Citizens Advice, Trading Standards and the Pensions Regulator. It is a time to highlight and raise awareness of all sorts of financial scams that seem to blight consumers these days. Included in this are, of course, pension related scams which regularly make the headlines with ‘liberation fraud’, ‘beware of cold calls’ and ‘scam’ being some of the keywords There are more but I think you get the gist.
Pension Scams are not diminishing. They are evolving with the scammers more devious than ever. Cases of pensions liberation are still out there and the new pension freedoms are offering a new way for scammers to get rich at the expense of unwary members of pension schemes: members who are faced with the risk of losing their pension savings and, to add insult to injury, maybe even face a tax charge on top of that. HMRC can charge up to 55% of the value of a payment deemed to be an “unauthorised payment”.
One statistic that is worth looking at to reinforce this is the report from Action Fraud that demonstrated 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. It is wrong to say that this is a direct result of pension freedoms; it’s too early for that sort of analysis. That the amount of reported fraud has tripled in the space of a month is, however, quite staggering.
The new Pensions Minister, Baroness Altmann, has been very supportive of the Scams Awareness Month and she is regularly quoted in the press and active on social media on the subject. One of her tweets caught my eye when she said, using all 140 characters, “Best pension advice: If someone cold calls you abt yr pension JUST HANG UP! Reputable firms won’t call you out of the blue”. I agreed and then got into a conversation with another trustee about why cold calling works. We concluded that there are probably two factors at play here. The first is naivety and the second is greed.
Scammers are clever and scammers are organised. If they actually turned their talents to legitimate business they would probably be successful. They understand that pensions are complex, people move around in jobs and have multiple pension pots and that the promise of “guaranteed” 8%+ investment returns from mostly unregulated investments gets your attention. So they get in the door with the promise of a free pension review and the rest takes care of itself.
So what can trustees do about this? Two things. The first is that old favourite: communication, communication, communication! The more information people have the more they are likely to spot the scam and the scammer. There is now a wealth of material out there to help trustees help members. , The Pension Regulator Scorpion campaign is a great place to start and the Pension Regulator has updated it for Scams Awareness Month. Communication should not just take place when a member makes a transfer request, members should be educated now. And don’t forget about your paid up members. They are precisely the type of member that scammers look to prey on.
The second is due diligence, make sure you, and your scheme administrator, are being vigilant when a transfer request is received. The Pension Ombudsman has set out his position on this in some of the determinations that are coming through. He expects transferring schemes to follow the law and their scheme rules but to go through all the necessary hoops. How do you go through those hoops? Well the best thing to do is acquaint yourselves with the new code or good practice ‘Combating Pension Scams’’ has been published by the Pension Liberation Industry Group and was devised by a combined group of industry experts including Dalriada Trustees Limited. The code highlights the common attributes of pension scams and includes checklists and communications which help Trustees with their due diligence process and provide evidence should the matter be taken before the Pensions Ombudsman.
So back to my initial question, what lessons are there for trustees from Scams Awareness Month? This is not an exhaustive list but I think the most important lessons are
Scams are not going away.
Scams are not decreasing.
Scams are evolving and so are the scammers.
Trustees need to educate their members.
Trustees need to be vigilant and do all due diligence
As Alan Greenspan noted corruption, embezzlement, and fraud, are all characteristics which exist everywhere. He went on to say that “It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff” Unfortunately, given human nature, eliminating pensions fraud, in whatever guise, is unlikely to be achievable. However, it is clear that Trustees have a key role to play in helping keep pension fraud to the absolute minimum.
Finally, don’t wait until the next Scams Awareness Month to keep up to date; being alive to scams and their ever changing nature is a full time job.