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Helping members avoid falling prey to investment scams
17 July 2020

Helping members avoid falling prey to investment scams

Insight Partner

Scams have been on the rise for many years and increased significantly following the introduction of freedom and choice. Although the changes brought much more flexibility for pension scheme members, the downside is that without sufficient knowledge, it can be easy for them to make poor decisions, such as falling for a scam which can create a permanent dent in their retirement income.

While the cold calling ban introduced early last year has helped to eliminate one way for scammers to contact potential victims, new methods have been developing with an increasing number of victims being targeted online. The Financial Conduct Authority (FCA) reported that over £27million was lost to online investment scams in 2018/19, with victims losing on average £14,600.

Although these figures are high and would undoubtedly be distressing for the individuals affected, the results from scams specifically targeting pensions are even more devastating. The most recent FCA figures show that victims of pension fraud lost on average £82,000, which for many savers takes decades to achieve. This leaves victims of pension scams approaching retirement with a significantly reduced income and, in some cases, victims have lost their entire life savings.

Unfortunately, the reality is that the situation is now getting worse due to the impact COVID-19 has had on global market volatility and the fact that many household incomes are under extreme pressure. Scammers are now using this situation to their advantage and pension savers are at greater risk of losing their pension to scams. Recent figures from Action Fraud show that over £5.3m has been lost to coronavirus-related scams since February 2020, with pension scams being among the most common type of fraud.

While the regulators and the industry are increasingly aware of scams and are putting measures in place to reduce the amount of pension savers falling victim to scams, there is still a long way to go.

Trustees are the first line of defence in protecting retirement funds and the industry is expecting them to step up to the task. The FCA and The Pensions Regulator (TPR) have issued comprehensive guidance on what employers and Trustees should be doing such as:

  • Signposting members to guidance from Pension Wise. 
  • Identifying increased risks in how a member has decided to access their pension funds and give appropriate warnings of the risks and implications of their chosen option.
  • Sending all Defined Benefit (DB) members requesting a cash equivalent transfer value (CETV) a template letter signed by TPR, the FCA and The Pensions Advisory Service.
  • Monitoring CETV requests and inform the FCA of unusual or concerning patterns, such as spikes or the same adviser across a multitude of requests.
  • Sending a warning letter to Defined Benefit (DB) members looking to transfer funds to highlight the risks and urge them to consider the decision carefully.

Providing financial education and guidance to members at retirement can help to ensure members understand their options and the risks involved.

Arming members with the facts on what they can and cannot do with their pension and the potential risks involved, will help them to make informed decisions and avoid making costly mistakes.

Financial education and guidance can also help members decide if they need further support such as regulated financial advice. This is also being encouraged by the Regulator, as they are calling on Trustees to promote taking regulated advice to its members.

Some schemes offer basic information on how their members can find an adviser but do not provide support in assessing the suitability of any given adviser. The downside of this became very clear in the British Steel fiasco when members were left to their own devices to find an adviser with many being ill-advised, at best, or scammed at worst.

While it is well-known that many Trustees have concerns over helping members gain access to advice, believing that they will be blamed for any bad advice given, simply referring members to a list of advisers to choose from, can lead to significantly poor member outcomes.

If done correctly, facilitating access to regulated financial advice does not carry the risk many presume. Having access to an adviser that has been vetted by the Trustee provides security for members and the adviser will be more familiar with the structure of the scheme, therefore providing better quality advice.

Introducing an adviser to a scheme after a thorough due diligence process can ensure that the responsibility for the regulated financial advice given to members, and the consequences of that, rest with the chosen provider and not the Trustee.

When searching for an advice firm, Trustees should:

  • Check whether the firm is regulated with the FCA and is authorised to provide specific advice, such as pension transfers.
  • Research their experience with other pension schemes.
  • Speak to other schemes using their services for an independent view of the firm and look at member feedback to help measure the quality of the service provided.
  • Check whether the firm has a robust compliance process e.g. 100% compliance-checking of all transactions in place to help ensure the quality of advice given to its members.
  • Check to ensure they have a robust regulatory record.
  • Request a breakdown of costs for the types of advice available to help ensure the costs are competitive for its members.

This article was featured in Pensions Aspects magazine July/August edition.

back to Pensions Aspects Magazine

Last update: 21 July 2020

Jonathan Watts-Lay
Jonathan Watts-Lay
WEALTH at work

Assistant Pensions Investment Consultant - Berkshire

Salary: £31500 - £37000 pa

Location: Berkshire

Senior Pensions Governance and Secretariat Consultant

Salary: £70000 - £90000 pa

Location: Hampshire

Senior Pensions Analyst

Salary: £55000 - £75000 pa

Location: London

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