PENSIONS
P eople often ask how to spot a would be easy to avoid. The reality is that scams take many different shapes, continually evolving to fit opportunities and enhancements in security, while scammers themselves hide in plain sight. There is of course a formal definition of a pension scam, but this implies that a pension scam is unique, when like all scams the method is the same; to misrepresent or mislead pension scam, hoping for a simple answer. If it were simple, a scam someone into thinking they are getting something they want or need, but instead, a criminal takes their money and disappears with it. A pension scam is a financial fraud based on an individual’s pension savings and generally involves moving those savings from a secure place and putting them into an arrangement where it is mismanaged – through high charges or risky investments – or stolen. The difference between a pension scam and a fake ticket scam, say, is size. Any scam is awful and involves a loss, but when someone’s pension is lost, the impact on that person can be profound and life changing. A pension can be a person’s biggest source of wealth, apart from their home, and their only source of income for their retirement. To lose it to a fraud can be devastating. Worse still, it may also take someone years to even realise they have been scammed, by which time it is too late to act. Victim blaming I work in a group of volunteers supporting pension fraud victims and the picture isn’t pretty. Victims tend to be in their late 50s and the loss of their retirement savings at this age means they have little opportunity to replace those losses with new savings. Many are unable to work because of the distress and helplessness they feel. A psychologist has diagnosed post-traumatic stress disorder in several cases and there is a real risk to life in some. Losses can be in the tens of thousands of pounds, but often significantly more. As readers will know, pension savings come from employee earnings, but also from employer contributions and tax relief. So, a pension scam victim is not just the individual who loses their pension savings, but also the employer and the state. It is very difficult for victims of pension scams to get the support they need, although there is a growing recognition that
more help should be available, whether financial or emotional counselling. The automatic reaction of law enforcement to someone fooled into handing over their pension savings to a scammer is that the victim is somehow to blame for being so foolish, naïve, stupid – pick an awful word at will. This is simply not true – any one of us could fall victim to a well-executed scam for a myriad of reasons that have absolutely nothing to do with intelligence. Research by the Financial Conduct Authority has shown that almost 50% of adults would fall for a scam, despite a national campaign to raise awareness. Victim-blaming makes things much worse for the individual's self-esteem and also ensures that people are reluctant to report a scam out of embarrassment, fear or simply by believing that nothing will be done. This needs to change. A further unfortunate consequence of some pension scams is where victims are cheated into accessing their pension funds before age 55. They have been scammed out of their savings, but HM Revenue and Customs deems them to have broken tax rules and must pay a tax charge of up to 55% to recoup tax relief granted earlier. This is a cruel twist in the law, which also needs to change. The outcome is that pension scams are under-reported and therefore government and police underestimate the threat. Lack of resources and expertise to deal with pension scams means that such crimes are low priority. As a result, little action is taken against scammers, which in turn makes scamming much more attractive to bad actors. We cannot go on like this. Pension fraud, including scams, costs the UK more than £6 billion each year. Just think of what could be done with that money – it could certainly help to fill the £20 billion black hole in the economy facing the government. Warning signs If you think it may be a scam, it probably is. Here are some typical warning signs to look out for: l contact out-of-the-blue by phone, email or social media. An approach of this kind is a red flag and should be ignored. No matter how exciting or attractive, it is likely to be a scam. Cold-calling is an offence so anyone who approaches like this is breaking the law l offer of a guaranteed or high return. No one enjoys missing out on a great deal, but
where pensions are concerned, the risk is too great l offer of a free pension review. Scammers are very persuasive and credible; they come across as experts who have best interests at heart, but they just want the money l pressure to sign up quickly. Scammers may say that the offer is time-limited or send a courier to collect signed forms. Regulated advisers will never do this. Spotting the signs Employers can help their workforces spot the signs of a scam through: l open and honest communication. There is a reason they say knowledge is power, even if it’s enough to make them pause. Consider sending some communication on the warning signs to look out for l reminding them of the organisation’s procedures and who they should contact l reminding them who their pension administrator is and what they should do if they think they might have been a potential target. Provide a contact number l recommending they contact Action Fraud right away by phone on 0300 123 2040 or via its online reporting tool: https://ow.ly/ wGhe50TUSAW. If they live in Scotland, they should contact Police Scotland instead. Both organisations will advise on what to do next l giving them details for the Money and Pensions Service, which can discuss the issues and explain the options. Prevention is better than cure Pension scheme providers don't want hard earned pensions lost to a scammer, so they will carry out checks to help spot warning signs before a pension fund is transferred. This is an important safety measure although sometimes seen as interference or delay. If a provider tells you it suspects a scam, you should listen, as once money leaves a provider it is unlikely to be recovered. A pension scam is only one of many threats to pension schemes. Savings are also vulnerable to other risks like identity fraud, internal fraud (for example where an insider sets up bogus payroll records) and cyber-attacks, as well as targeting individuals’ retirement funds once they have been paid out from a scheme. All of us need to be vigilant to help protect our own savings, as well as those of our customers. n
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| Professional in Payroll, Pensions and Reward |
Issue 106 | December 2024 - January 2025
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