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What next in the battle against pension scams?

The pensions cold-calling ban finally came into force at the start of the year, but what is the next step in the fight against the fraudsters?

Magnifying glass on the"fraud" in dictionaryWhen you know very little about a subject, it is easy to believe what you are told by those who appear to know much more than you do. Unfortunately, that can provide pension scammers with a way in to part people from their retirement savings.

The financial services sector is working hard to combat pension scams. The pensions cold-calling ban, which originated from Red Circle Financial Planning director Darren Cooke’s online petition back in 2016, is finally in place, meaning it is now illegal to make unsolicited calls to people about their pensions.

There has also been a lot of activity to coincide with the Citizen’s Advice Bureau’s Scam Awareness Fortnight, which finished last week. For example, The Pension Scams Industry Group updated its code of practice, which helps trustees and providers protect their members and themselves from pension scams.

Insolvency Service issues warning over increasing pension scams

XPS Pensions Group also revealed an increase in the number of ‘red flags’ being reported on transfers made by members of its clients’ pension schemes over the past year. These were up from 13 per cent in June 2018 to 34 per cent in June 2019, indicating scam awareness is improving.

However, as pension scams evolve and the perpetrators constantly change their tactics to avoid detection – for example, getting around the cold-calling ban by going online – the financial services sector must keep up.

So, what needs to happen next?

Protecting the vulnerable

XPS Pensions has had a dedicated scam identification team since 2015, which looks for signs by asking members who are transferring how they have got to that point. Senior consultant Mark Barlow says there are various flags that a scam may have occurred, including unsolicited contact, confusion over fees and not knowing who provided the advice to transfer.

“There may be two advisers and the member doesn’t understand who is responsible. It could be legitimate but, in most scam cases, that is how the advice is set up,” he says. While these red flags do not necessarily indicate a scam, they will require further investigation.

PA Consulting pensions expert Mike Teall believes the cold-calling ban and ScamSmart, the FCA’s public awareness campaign, have made things harder for scammers.

The FCA has reported a five-fold increase in the number of people seeking information about scams, suggesting the public now has a higher degree of suspicion about those offering dubious investment opportunities for their pension savings,” he says.

The industry is working against the scammers mainly by trying to identify and protect vulnerable people such as the older generation, who often believe what they are told by criminals pretending to be from the police or HM Revenue & Customs, says Selectapension director Peter Bradshaw.

“Some product providers will attempt to validate requests for information and access to their investments from vulnerable investors, and advisers can play a protective role if they know their clients and their families well,” he says.

Pensions regulator calls on advisers to get behind cold-calling ban

However, Rowley Turton director Scott Gallacher points out that scammers do not always restrict themselves to “older people with a few quid in their pension”.

He says: “They can target successful self-made business owners who are used to dealing with big figures. These are people who do not think they need to take advice because they are used to making their own decisions. But, if anything, they’ve got more money and so are better targets.

Promoting advice

Commentators say people who take advice are generally more scam aware, with the adviser being their first port of call if they are worried they are being targeted.

“Why, as an advised client, would you pay someone to look after your money then trot off and do an investment without their knowledge?” says Red Circle Financial Planning director Darren Cooke. “If we see something that offers 8 per cent when the banks are offering 1 per cent, we know it’s a scam.”

Former pensions minister Ros Altmann is “deeply concerned” about the ease with which scammers seem to operate, despite legislation and ongoing awareness campaigns. She believes consumers are not sufficiently protected and anyone who wants to transfer money out of a pension should first be sent automatically to PensionWise guidance to prevent them falling for cold-calls or unsolicited approaches.

Altmann also highlights a need to protect consumers against moving pension money around without “proper, paid-for, independent financial advice”.

“This is something that has never been properly promoted and the idea that an IFA can save you much more money than their own fees is not sufficiently recognised,” she says. “If an IFA does have proper insurance cover and operates under the regulatory safeguards, it is much less likely individuals will lose out to scams.”

Altmann is keen to see greater awareness of the need to pay for financial advice before making irreversible pension decisions. “Unregulated introducers still operate widely and the tactics they use can be sophisticated. These people are often based abroad and, even if they are in the UK, they are seldom caught. [Furthermore,] even if they are caught, it seems that the punishments are rather lenient,” she says.

Tougher action

Reinforcing Altmann’s point, Cooke would like to see the FCA take more action when scams are pointed out to it, rather than leave them “in plain sight”.

He says: “We see things on social media – for example, the London Capital & Finance mini-bonds offer was in plain sight for more than a year. Someone’s got to take action before it gets to that point,” he says. “Even when you find the guys behind the scams, the action taken against them is fairly negligible. That has got to change.”

Paul Lewis: Ministers should not pass the buck on LCF mini-bonds

Cooke says cases such as LCF’s show how it can take years to get to court, then the perpetrators receive merely a fine and effectively a slap on the wrist.
“Even if they get two years in jail they are out in 12 months with good behaviour,” he says.

Adviser view:  Scott Gallacher, director, Rowley Turton

It’s a never-ending battle but we have to do all we can to minimise the risks and protect people. We are already doing quite a bit. Clients notice and mention The Pensions Regulator’s scorpion poster that comes with every pension transfer quote. But if you’re not one of the good guys you could probably just say ‘Don’t worry about that, it’s just a standard leaflet.’

Even when you tell people it’s a scam, it is not always enough to stop some losing another £10,000. Legitimate firms won’t be cold-calling but scammers will ring people two or three times a day and bully them – that’s a sales organisation and it should be a red flag.

Adviser view: Darren Cooke, director, Red Circle Financial Planning

Things have improved; there is a lot more awareness. We’ve just had Scam Awareness Fortnight, which I don’t think existed before. There is discussion about scams in the media and that is stronger since the campaign for the
cold-calling ban.

When I started the petition, the aim was to get cold-calling banned, but if all it did was to raise awareness I wouldn’t have been upset. The fact we got the ban is great and anecdotally the number of cold-calls has gone down – but they have not stopped. Some people are still offering ‘financial reviews’ or investment reviews and that’s sad, as we wanted the ban to cover cold-calls about pensions and investments.


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There is one comment at the moment, we would love to hear your opinion too.

  1. Mr Boleyn PFS 5th July 2019 at 8:48 am

    As regards pension scams there are a couple of areas which if addressed could greatly reduce scams, but which would also slow down genuine pension schemes being established and would limit the variety of investments permitted in pension schemes. Area 1 is to acknowledge that HMRC has gone missing in their post as gatekeeper to setting up new pension schemes. A large number of scams arose from clueless individuals being manipulated into setting up as directors of non existent companies to then set up SSASs. It was then possible for the scammers to hoodwink the trustees of the scam(said clueless individuals) to authorise investments into unregulated scam investments. Thereby signing away their pensions forever. HMRC where were you when the common sense genes were handed out? Did you not think it odd that so many one member SSAS were being established? A more robust due diligence process for HMRC should’ve been in place to contact each new company being set up. Area 2 – don’t allow tax relief on left field investments. This will be unpopular with many people who want freedom to put whatever they want in a pension but a pension conveys large amounts of tax relief which the taxpayer has to fund. Why should unusual investments attract tax relief? Unregulated investments should simply not be allowed into pensions or ISAs. If people want to take big chances the do it in products which do not attract massive tax payer subsidies. If such investments were not permitted then every pension provider including sipps and insured schemes and SSASs would be accountable for allowing them in mistakenly/wilfully. This sea change could then be publicised regularly. If people want to invest in timber farms in Costa Rica and hotel developments in Cape Verde or renewable energy schemes in Ukraine then they won’t be able to do so in ISAS or pension wrappers.

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