By Dale Critchley, Policy Manager, Aviva
For a lot of people, their pension fund is their largest source of wealth alongside their home, but unlike their house it seems intangible.
A cold caller suggesting an individual sell their home and invest in container storage or airport car parking in Wyoming might get short shrift, but when it comes to pensions a general lack of financial understanding means that the slick sales people can get traction.
I was called by a liberator who told me that I could access my defined benefit pension benefit prior to age 50, despite me never being a jockey other occupation with a protected retirement age. Their adviser would call me with full details of how I could transfer to their scheme and minimise the tax charges on withdrawals.
I wondered how many people would have taken up the offer. Enough to pay for the call centre and make decent profit was my conclusion. Indeed, City of London police data shows £13m in pension liberation losses were reported in 2015/16 and £19m the year before. March 2017 showed £8.6 million in losses that month.
This is likely to be the tip of the iceberg as fraudsters move into unregulated investment opportunities, often via Small Self Administered Schemes (SSAS). TPR estimate that there are over 770,000 SSAS schemes in the UK, which seems out of step with market need when SIPPs (Self Invested Personal Pension) represent a more highly regulated alternative.
Individuals can be encouraged to invest in anything from bamboo, through to parking spaces and teak trees with the promise of double digit returns. Sky high fees and a limited secondary market mean that returns are rarely as advertised and significant losses commonplace. The Serious Fraud Office estimates potential losses from one storage unit scam at £120 million.
New legislation to ban cold calling, texting and emails and restrict pension transfers will be introduced “when parliamentary time allows”. Transfers won’t be restricted until the authorisation regime for master trusts is in place, meaning 2019. We would hope that the cold calling ban can be implemented quicker, but with parliamentary time set aside for Brexit this could be delayed.
Trustees and providers must continue to operate controls to mitigate fraud in the interim. The FCA’s Scam Smart site and the Pension Regulator’s (tPR) Scorpion campaign provide useful guidance for everyone. At Aviva we have a number of controls in place to help spot scams and alert our customers, but even the relatively simple checks in tPR’s scheme transfer checklist can make a big difference.
The other piece is of the jigsaw is of course education. Short simple messages to members designed to alert them to scams ahead of the ban are what I think are needed. What could be simpler than “if someone calls you about a pension transfer, hang up”.
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