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At this time of year, it is common for people to feel the financial pinch following Christmas. Adding the ongoing challenges posed by the pandemic into the mix is likely to lead to many families being even more financially vulnerable.
For better or for worse the pandemic has shifted the mindset of millions, opening the door to more people shopping online, for everything from groceries to insurance and financial services. While this brings opportunities for making it easier to buy products, it also opens the door to fraudsters looking to prey on the vulnerable. This means that pension savings and other assets could be under threat from scammers and unauthorised companies that might target them.
Findings from the Aviva Fraud Report [1] found that one in eight people (13%) have been the victim of a financial scam which related to coronavirus. Almost half (46%) of all scam victims said it negatively affected their mental health, their trust in others (45%), and their confidence in the financial services system (37%).
Members work hard to build their pension fund and scammers are working just as hard to get their hands on it.
Communicating the risk of scams to clients and members
While the types of financial scams are generally the same as those before the pandemic, coronavirus has been used as the hook to lure victims. Employers and members must be aware of common pension scams, so they know what to look out for.
Clone-firm investment fraud is a common practice where fraudsters will set up imitation websites that look like well-known financial services brands – often using the legitimate company name within the domain name. Victims of clone-firm investment scams tend to be people approaching retirement age
who have access to their pension pot and are browsing the internet, in the hope of finding higher returns. They often have large amounts of cash at their disposal which is currently making low returns in a low-interest environment.
Pension cold calls were banned in January 2019 so members shouldn’t expect any unsolicited calls about their pension, other than from their pension provider, pension scheme, or the government.
Here are a few common pitches scammers use to initiate contact:
The offer of a ‘free’ pension review – Members may not have taken a close look at their pension for some time. A free pension review, therefore, might sound like quite a good thing to do. However, the only way to get a proper pension review is to consult a regulated financial adviser.
The chance to ‘unlock’ cash in a pension Unlocking cash is tempting when members are financially vulnerable. If a scammer ‘helps’ members to access their pension by transferring money into a fraudulent pension scheme, they’ll usually expect a large slice of their money in return and may even steal the whole lot. Her Majesty’s Revenue and Customs (HMRC) will also penalise members for accessing their pension early. If a member has poor health or a ‘protected’ pension age of less than 55 and would like to access their pension early, they need to speak to their scheme or pension provider rather than someone offering to unlock a pension.
A fantastic investment opportunity with ‘guaranteed’ returns – One of the most common pitches is for scammers to propose a way to improve your investments’ performance. When markets fall in value and when interest rates are around 1% or less, a 6% or 8% ‘guaranteed’ return will sound great. The ‘investment’ opportunity will typically be in something unusual such as property development, hotel rooms, storage units, or car parking lots, both in the UK and abroad. In this case, the adage ‘if it sounds too good to be true, it probably is’ applies.
The Code of Good Practice
Raising awareness of common pension scams and communicating the risks to clients and members is one of the core principles of the Code of Good Practice developed by the Pension Scams Industry Group (PSIG).
PSIG is a voluntary body set up to combat pension scams, they developed the Code of Good Practice to help trustees, providers, and administrators to protect scheme members.
The Code itself is not statutory, nor does it seek to override guidance issued by regulatory bodies. It seeks to set a best practice industry standard to help identify transfer requests that may be fraudulent or a scam.
The Code is based on three guiding principles:
1. Raising awareness of pension scams
2. Having robust, proportionate, and compliant processes for assessing pension scam risks, and for responding to risks
3. Awareness of strategies used by perpetrators to undertake due diligence and refer to the warning flags as indicated in The Pensions Regulator’s Guidance, FCA alerts, and by Action Fraud.
Version 2.2 of the Code of Good Practice on Combating Pension Scams was published in April 2021 to reflect the evolving nature of scams and is expected to be updated again following the recent regulatory changes.
New regulations to protect pension savers
New pension transfer rules introduced by the Department of Work and Pensions came into effect on 30 November 2021. These new regulations will mean suspicious transfers can be stopped from ending up in the hands of scammers, as pension trustees and scheme managers get new powers to intervene, where a ‘red flag’ is identified.
A ‘red flag’ is raised where there are clear signs of fraud or methods frequently used by scammers have been identified. This includes financial advice being provided by unregulated firms or individuals, there has been unsolicited contact, incentives to transfer have been offered or the member was pressured to act quickly via a time-limited deal.
In other circumstances where a potential scam is suspected, this can be triggered
by activities such as a proposed transfer into high-risk investments, hefty or unclear
charges in the receiving scheme and moving money into an overseas pension. Scheme trustees and administrators can raise an ‘amber flag’ which will lead to a pause in a transfer until a member takes specific scams-related guidance from the Money and Pensions Service (MaPS).
The introduction of this new traffic light/flag system is expected to make a big contribution towards helping to slow down or block suspicious pension transfers from happening.
The role of member engagement in combatting scams
So, we know what ‘red flags’ members need to look out for, what guidance is in place for trustees, providers and administrators, and now the new regulations for further protection, but what role does member engagement play in combatting scams?
If your clients support their employees with financial education and pension communications, even if it is the very basics, the better equipped members will be to spot when something is not quite right. Stopping pension scams altogether is a difficult challenge but helping members to understand their pension will only strengthen this.
Protect your clients from fraud
At Aviva, we’re used to combatting the threat of online crime and can help your clients and their scheme members spot a likely scam and stop the scammers in their tracks. You could help them benefit from our experience by visiting our fraud protection hub to see how we’re helping safeguard scheme members’ money.
Our Fraud Protection Hub is a dedicated area of our website that’s entirely devoted to protecting our customers from the threat of scams. You can follow links to articles on identifying the latest tricks and beating fraudsters, as well as details on the measures Aviva has taken to provide protection during the pandemic and beyond.