PENSION FRAUD ON THE RISE
Thursday, May 26, 2016
Pension Fraud is a hot topic at the moment. Savings are under threat from an increasing number of pension scams but even the pension minister has said she is powerless to stop fraudsters cold calling older people.
Police data last year revealed that pension scam losses had more than trebled in the month after pension freedom was introduced in April. Losses from pension fraud surged 235% to £4.5 million in May 2015, up from £1.4 million in April of the same year as savers were able to access their pension cash.
Pre-pension freedom this fraud was called ‘pension liberation’ as fraudsters would offer people access to their entire pension fund, often pre-age 55, but the saver would either see little of the money or be hit with a large tax bill – the unluckiest experienced both.
However, since ‘pension liberation’ has effectively been legalised for those aged 55 and over and there is no need to buy an annuity, scammers have changed tack. Instead of encouraging savers to get hold of their cash early and avoid buying an annuity they are encouraging them to take their money out using the freedoms and invest it in questionable investments with the promise of larger returns.
A recent study by Citizens Advice turned up some truly scary results. In a survey of 2,000 people, three out of four said they were confident they could spot a pension scam. The same 2,000 people were then shown three mock-up adverts for financial advice – two of which were scams – and asked to say which advert they would trust in a real-life situation. Nine out of ten people chose a scam. Even among those who had said they were confident they could spot a fraud, 87 per cent still fell for a scam advert.
But this isn’t the only type of pension fraud that is growing – so is deceased pension fraud. Research shows that one in five UK pension schemes suffer from people continuing to claim payments for dead relatives. But industry insiders believe that fraud levels could actually be higher as ‘much more may be occurring under the radar’. These figures are only talking about fraud that has been detected and reported. Fraud is an ongoing risk for all trust-based pension schemes and it's crucial that trustees remain alert to the risk of fraudulent activity. The regulator would expect trustees to report any significant incidents to the regulator and to inform members of any significant losses of assets.
One solution is Halo, our deceased fraud prevention product ,which enables administrators and trustees to identify policy holders that have sadly passed away. As the mortality rate continues to climb this is a problem that is growing and could spiral out of control if not stopped.