Beware of the devious pension pot fraudsters
IT IS a dispiriting but very real fact that where there is money to be made from unsuspecting individuals, fraudsters will quickly appear.
The surprise announcement by the Chancellor that retirees would be given greater flexibility over their pension pots came i nto force on April 6.
But with this increased freedom also c o mes increased risk. It has opened the door to fraudsters seeking ways to take advantage of retirees who may not have the experience, technical knowledge or confidence to know what best to do with their hard-earned savings.
In the past few years, fraudsters have preyed upon the vulnerable in need of immediate cash by encouraging them to release money early from their pension savings through a scam known as ‘pensions liberation’.
Others have attracted money by encouraging pension savers to transfer their cash to dubious investment opportunities ‘ guaranteeing’ outrageously high returns, such as in overseas tree plantations and property development.
We have already identified and prevented nearly 1,200 cases (or the equivalent of £ 25m) through our own fraud tracking methods.
Like a virulent bacteria, a new strain of scammers has been bred by the pension freedoms.
They use sophisticated techniques including ‘mimicking’ legitimate services such as Pension Wise and well-known providers’ marketing materials and websites, or promoting investment schemes that are difficult to separate from genuine opportunities.
The insurance industry supports customers having the freedom to access their cash and do as they please with their money.
However, on the downside, it is more difficult for providers to act as a ‘barrier’ to prevent customers losing their savings through fraud. It is self- evident that the effects of fraud can be catastrophic, with r etirees potentially l osing their entire pension pots.
Given this concern, we commissioned research to discover people’s views. Worryingly, nearly half of the 964 respondents with pension savings said that they had been approached to see if they wanted to review their pension, or release some of it as cash. More disturbing was the fact that more than one third of these were likely to release their pensions via the online ‘free pension review companies’, which are often a front for fraudsters.
It is clear to me more needs to be done to raise awareness. It is vital that pensioners are informed of the risks and given the tools to spot and then block fraudsters.
This is especially important with the consideration being given to the construction of a secondary annuities market, which would e nable pensi o ner s to exchange their existing regular annuity payments for one-off cash lump sums or alternative retirement products such as drawdown.
This, as yet undefined, secondary market could spawn future opportunities for unscrupulous scammers.
The Government and regulators are to be applauded for doing their best. Industry groups have also played their part, in particular with the development of a code of good practice. We all look forward to law enforcement agencies catching and punishing the crooks behind these schemes.
ROS ALTMANN, the new Pensions Minister, will, I am sure, make this one of her top priorities but we in the industry also need to take a robust stand.
It is our responsibility to do everything we can to help protect our policyholders, by raising awareness, identifying new types of fraudulent schemes and helping put a stop to these malignant practices.
In the final analysis, it is up to us as individuals. The South Sea Bubble phenomenon took place almost 300 years ago. When Sir Isaac Newton was asked about the continuance of the rise of the stock, he answered: ‘I can calculate the movement of the stars, but not the madness of men.’
What was valid in 1720 is valid in 2015. As individuals, we must be the first line of defence. If something looks too good to be true then it probably is.