Pension scams are on the rise in the UK, and fraudsters are becoming increasingly clever in their tactics. With economic uncertainty being a big concern for many people, the targeting of pension scheme members can lead to devastating consequences.
As a trustee, provider or employer, you play a critical part in protecting them. By understanding the risks and taking proactive steps, you can help prevent people from falling victim to these fraudulent schemes.
Understanding how these types of scams work
Often, the process starts with an enticing offer that promises quick, easy access to retirement funds or high returns on investments. Cold calls or unsolicited emails are used to target vulnerable targets, typically offering ‘early access’ to pensions before the legal age of 55. Alternatively, they may suggest pushing investments in overseas or non-regulated schemes that seem too good to be true.
Some scammers will pose as legitimate financial advisers, claiming to offer expert advice on managing pension pots. They may try to convince people to transfer their funds into ‘specialist’ schemes, which are actually worthless or high-risk investments. Once the money has been moved, it’s often impossible to recover. Knowledge is power when reducing the risk of falling for scams.
The risks to members and schemes
For members, the most immediate consequence is the loss of their savings. In many cases, the entire pot may be drained, leaving individuals without the funds they had planned to rely on in retirement. Even when only part of the savings are lost, people often face substantial delays or difficulties in retrieving their money.
There are other effects beyond financial loss. For instance, if someone is convinced to transfer their pension into a fraudulent scheme, they could face tax penalties from HMRC for early access or be subject to hefty tax charges. This could result in less money for retirement than originally planned.
The schemes themselves are also at risk – the reputation of a provider or employer can be easily damaged. Employers and trustees have a duty to safeguard, and failure to prevent incidents of this nature can compromise the level of trust.
What you can do to protect members
Education is crucial. Running regular awareness campaigns helps people recognise scam warning signs. Ongoing communication, such as newsletters or online resources, should give clear guidance on spotting fraudulent setups and how to take action. Emphasise red flags like high-pressure tactics and promises of unusually large returns.
Encouraging scepticism of unsolicited contact is essential. Guide people on how to verify the legitimacy of offers, such as checking whether the adviser is registered with the Financial Conduct Authority (FCA) or ensuring that the investment scheme is FCA-approved. It’s also crucial to highlight the importance of not rushing into decisions. Scammers often create a false sense of urgency, which can cause people to act impulsively.
Mention that when you do spot a potential scam, it’s important to act quickly. This means reporting the incident to the relevant authorities, such as the FCA or the Pensions Regulator (TPR), so that further harm is prevented.
Staying compliant and proactive
As a Local Government Pension Scheme (LGPS) manager, you play a vital role in safeguarding people’s futures. By working together with specialist advisers and legal professionals, you can significantly reduce the threat to your scheme, providing peace of mind.
You must stay up to date with the latest guidance from the FCA and TPR. These bodies regularly update their advice and offer resources to help identify and mitigate threats. Make sure your procedures reflect any updates, and encourage your team to undergo relevant training to stay informed.
An effective risk mitigation strategy also ensures compliance with all legal and regulatory requirements. This includes conducting thorough due diligence when selecting third-party services, checking all transfers against fraud prevention lists, and reviewing communication processes for greater transparency and clarity.
