Pension scams affect us all. While there is, understandably, huge focus given to the member – who we must protect at all costs – it goes far wider than that. So it is all our interests to prevent them. But what can employers do? Quite a lot actually.
Firstly lets look at a pension scam, what is it exactly? It is an attempt, successful or not, to persuade someone to release funds from an HMRC registered pension scheme without first warning them about tax charges; or to persuade a member to access or transfer their pension savings to inappropriate destinations or investments. It’s about unscrupulous people misleading pension savers about risks or benefits, often resulting in the complete loss of someone’s lifetime savings. Let that sink in for a moment – the complete loss of a lifetime of savings.
The impact on victims
Being a victim of a scam can be utterly devastating financially and psychologically for an individual, and a family. Getting the money back is almost impossible.
Thousands of transfers are requested every year for good reason and to safe destinations. A minority, around 5%, are likely to be scams. But, of course, 5% of a very large number is also a very large number.
The Pension Scams Industry Group (PSIG) has estimated that since 2015 more than a £10 billion has been lost to pension scammers. That’s around 10,000 people a year losing some or all of the retirement fund that they (and their employer) contributed to. The average loss is around £90,000.
How can so many people fall for a scam? Those scammed are often highly intelligent professionals, often with good financial knowledge. Being scammed can happen to anyone.
Scammers are sophisticated, charming and appear to know things that others don’t. They too are professional. They promise what people want to hear. Research shows that around 50% of people shown a scam offer don’t realise it’s a scam and many of those who are scammed don’t find out until some years later when it’s too late to do anything about it.
Another challenge to beating scams is that many people don’t feel close to their pension savings. They rarely think about it and don’t understand how it works, so it’s difficult for them to see the value in their pension. This means they are more easily tempted by more exciting and interesting alternatives.
Since 2015, PSIG has published practical guidance for pension scheme trustees and administrators so they can spot suspicious transactions and help to stop them. At the end of 2021, the government introduced legislation aimed at stopping transfers where a red flag shows up, or requiring impartial guidance to be taken where an amber flag is spotted. While the regulations have been a hammer to crack a nut, slowing up straightforward transfers, they have certainly helped to reduce scams. We await a review of those regulations to allow due diligence efforts to be better targeted, but vigilance will be needed until scammers leave our pension savings alone.
While PSIG focuses on pension scams, there are other traps for the unwary. Sudden changes affecting pension schemes where members are faced with complex options, like the high profile British Steel pension scheme (BSPS) restructuring project, can attract the wrong kind of financial advisers – those motivated by fees rather than a member’s best interests. While BSPS members were not scammed, the Financial Conduct Authority (FCA) found that around 50% of the advice given was unsuitable, resulting in financial losses. Bad advice has consequences, but it’s avoidable too.
This is where employers come in. Preventing scams and bad outcomes is possible with just a little effort and targeted spend. By preventing scams and bad outcomes, you protect your employees, past and present, protect your scheme against complaints and potential future financial liability for maladministration and protect your company’s reputation.
So, what does it take? The following actions will help ensure you are doing everything you can to stop scams.
- Ask your scheme trustees to confirm that they are aware of and keep up to date with the scams threat and are signed up to the Scams Pledge
- Ensure that the trustees or pension providers follow the PSIG Code and carry out the right checks on transfers and withdrawals. They should ask their administrators to do this on their behalf
- Make sure that employees and scheme members are warned regularly of the risk of scams
- Look out for rogue advisers targeting your workforce – known as “factory gating”
- Help employees and scheme members get reliable advice and guidance when they need it. This can be done best by the trustees or provider appointing a regulated independent expert adviser or panel of advisers for scheme members to use, especially when something is changing. By doing the hard work of selecting and monitoring trusted advisers, you will be confident that members will make fully informed choices and that protects you too.
Protecting pension scheme members from scams takes a bit of effort, but is well worth it.
Margaret Snowdon OBE is chair of Pension Scams Industry Group