Pensions scams – how not to fall for them

2nd June 2021

What is a pensions scam?

Scammers persuade savers to transfer all of their pensions savings, or to release some funds from those savings, by making attractive sounding, but ultimately illusory, promises as to the returns to be generated for the saver by investing those savings in exotic products or schemes ‘promoted’ by the scammer.

But the sad reality is that people who fall victim to scammers generally lose some, or all, of their pensions savings in worthless investments, with little opportunity for them to seek legal redress from the scammers or those associated with them.

Are things getting worse?

Many believe that the personal financial difficulties caused by the Covid-19 crisis could lead to more people trying to access their pensions savings early and thereby risk falling victim to a pensions scam. This may be especially the case as furlough and other governmental support comes to an end later this year.

Unfortunately, the position does seem to be getting worse in 2021. The UK’s national reporting centre for fraud and cybercrime, Action Fraud, recently issued a warning to savers to protect their pensions amid an uptick in cases this year. It has revealed £1.8m has already been lost to pension scams and fraud this year alone (the total figure is over £30m since 2017). And the true scale of pension fraud is almost certainly much higher than what is reported, as victims often do not realise that they have been scammed until many years after the event or are too embarrassed to report that they have been scammed.

What’s the risk for pension scheme trustees?    

The rise in pensions scams also poses a clear risk for scheme trustees. Some occupational pension scheme (OPS) members who fall victim to scammers later bring complaints about the trustees, arguing that the trustees should have done more to prevent the member from transferring out of a scheme and from the scam. They say that the trustees should therefore compensate them for their losses (especially if the member cannot secure redress from other sources) or reinstate their benefits in the scheme. These complaints can end up before the Pensions Ombudsman or the court. Large sums of money can be at stake.

What’s to be done?

So how can pension savers and scheme trustees best protect themselves against the risks associated with pensions scams?

Tips for pensions’ savers

We suggest the following:

  • Always be cautious and ignore unsolicited or unexpected pension opportunities, such as the offer of free pension reviews or investment invitations, whether made via email, social media, text, or cold calling. If you are contacted out of the blue, then there is a risk you’re being scammed.
  • Watch out for typical scammer tactics such as pressurised decision making, offers of limited time deals and outlandish promises of returns on investments (remember the adage – if it sounds too good to be true, then it almost certainly is).
  • Look out for assurances that there is a ‘legal loophole’ to access pensions savings early and without risk or tax. Don’t be fooled; there generally isn’t one.
  • Beware of new or exotic investments in high risks schemes or products like overseas property, renewable energy bonds, forestry, storage units or biofuels.
  • Speak to the Money & Pensions Service for impartial advice before deciding about pensions and consider using a Financial Conduct Authority (FCA) authorised independent financial adviser (IFA) to help you decide.
  • Research any firm offering services through the FCA first. Check the FCA Register to make sure that anyone offering pension advice is authorised by the FCA to perform the service they are providing for you, and that the details they are providing are the same as those on the register. You can also check via the FCA’s special ScamSmart website.
  • If you are warned by the trustees of the pensions scheme that there is a risk of being scammed, listen to that warning – the trustees are not trying to be difficult, they are looking after your best interests.

Tips for trustees

Trustees are in a difficult position, especially when they are dealing with a scheme member who is insisting that they wish to transfer benefits out of the scheme. So, they must do their best to keep up to date with scam risks that are constantly evolving.

To help, the Pensions Regulator (TPR) has urged trustees to sign up to TPR’s pledge to fight pensions scams, to ring alarm bells over scams that they come across and to follow the Pension Scams Industry Group Code of Good Practice (which contains practical steps for carrying out due diligence and assessing member transfer requests).

And when confronted by a member’s request to transfer out of a scheme, trustees’ due diligence is key to warning the member about the risk of a scam and for avoiding future liabilities if things go wrong for the member.

So, trustees should:

  • Make members aware of the issues. They can direct them to TPR website, which features a member’s information pack.
  • Be vigilant for warning signs or ‘red flags’, such as the member been under normal retirement date, the member pressurising the trustees/administrators to carry out the transfer quickly or the member having decided to transfer after an unsolicited approach or having not taken professional advice.
  • Ask HMRC to confirm any receiving scheme’s status as a registered scheme. For transfers to SIPPs, personal and contract-based stakeholder schemes, trustees should check whether the receiving scheme provider is FCA authorised.
  • Document thoroughly all aspects of the due diligence process in case they ever have to justify their actions before the Pensions Ombudsman, TPR or the court.

If, having carried out the due diligence, the trustees suspect that a receiving scheme may be involved in a scam, they should make sure they clearly communicate their suspicions to the member.

At the end of the day, the trustees may not be able to stop a member transferring benefits out of a scheme and into a scam. But if they follow these steps, then at least they will have the comfort of knowing they have done all they can to prevent the scam and to protect themselves in the future event of a complaint or claim against them.

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