The Pensions Policy Institute (“Institute“) has said that a lack of comprehensive data on the number and scale of pensions scams, places limitations on the industry’s ability to effectively protect savers. According to the Institute, “victims of pension scams [are] losing more than £80,000 on average.” There is growing concern from the Institute that during the COVID-19 pandemic, scammers will take advantage of uncertain financial issues and volatile markets more so than ever.

Background

The Institute has said that the nature of pensions’ scams changed after 2015, when freedoms were introduced by the Government that allowed savers to transfer their investments out of “gold-plated” defined benefit schemes (“DBS”). Since then, scams have increasingly focused on the transfer of benefits to pension arrangements that invest the money inappropriately.

Between 2018 – 2019, around 210,000 individual transfers took place from DBS, with a total value estimated at £34 billion. Interestingly, the number of ‘red flags’ raised over transfers from DB to defined contribution schemes increased from 13% in June 2018 to 34% in June 2019. However, the Institute states that this red flag analysis is not a guaranteed indicator that scams are on the rise.

The Institute also noted that although a ban on pensions related cold-calling was established in 2019, “a significant proportion of people are continuing to fall victim to pension scams“.

Data concerns

The Institute has observed that the available data about the number of scams taking place, as well as the amount lost in each scam, does not offer a comprehensive view of the true scale of the issue.

Two factors were reported as particularly impacting scams data. First, the lack of reporting by victims of pension scams. Secondly, there is a lack of an organised approach to data gathering. This means the data is not collected in a comparable and easily-aggregated way across the industry, which in turn hinders the ability to take a holistic view. The result is that the number of pension scams that take place in the UK and how much money is lost remains unknown.

According to Lauren Wilkinson, Senior Policy Researcher at the Institute, “gaps in data on scams make it difficult to assess the true scale of the impact and nature of scams taking place, and in turn this makes it more difficult for regulators and industry to enact improved procedures for protecting savers.”

In an effort to plug some of the gaps, in February 2020 the Pensions Scams Industry Group in cooperation with The Pensions Regulator and the Police Foundation produced a survey to investigate the scale of the problem. The results are expected to be available in the coming months.

Comment

 Despite the Government’s efforts, it seems that outlawing pension cold-calling is not enough to deter scammers. The scammers have simply evolved their practices – using new types of scams and different channels of contacting potential victims. Significant sums are being lost by victims of scams; it is therefore crucial to find a way to protect savers and improve the adequacy of their retirement income in later life. Policymakers need to better understand the nature of scams and how many people are being affected in order to take further action.

In the meantime, the Financial Conduct Authority has warned pension savers to be on the lookout for scammers trying to exploit anxieties over the Coronavirus pandemic. This warning should be heeded in these uncertain times, as scammers are taking advantage of economic instability, whilst individual savers are facing greater financial stress – thereby increasing the risk that those targeted will become victims.