19.Readier access to pension pots combined with the difficulties consumers have in making decisions regarding retirement finances mean that the pension freedom reforms have increased the potential for scamming. The risk of scamming was therefore an important element of our inquiry.
20.The Treasury told us the freedoms were an “opportunity for scammers to design new and sophisticated investment scams”. In particular, we were told that customers who might not be considered conventionally vulnerable were susceptible to so-called “boiler room” schemes inviting unsuspecting investors to buy assets such as fine wine or overseas property.
21.We heard mixed evidence on whether rates of scamming have increased in practice. Citizens Advice said there had been a growth in attempted scamming of the 55 and over age group and that their staff had seen customers repeatedly targeted. The Minister told us that an increase in scam reporting was evidence that publicity was working. The FCA reported no “spike” in total levels of financial scamming, suggesting that scammers may have switched their focus to pension pots from elsewhere. However, they conceded it was difficult to estimate the rate of illegal activity. It can also be many years before someone realises they have been defrauded.
22.The Government has established Project Bloom, a “multi-department, multiagency group of officials to help co-ordinate action to tackle scams, monitor trends and share intelligence on emerging threats”. The FCA launched the second phase of its ScamSmart media campaign in April and cited increased consumer contact as evidence that it is reaching its target audience. Where scams originate from unregulated businesses, particularly those based in other jurisdictions, tactics such as closing down websites may be the most effective means of disrupting fraudsters.
23.We pressed witnesses on whether more could be done. Michelle Cracknell, Chief Executive of TPAS, sounded a rather defeatist tone when she told us that scams are “like a balloon … if you push down on one area they are only going to pop up elsewhere”, though she did think more could be done to promote awareness. In particular, the fact the Government never contacts a person unprompted to discuss pension freedom options could be better publicised. Other witnesses also advocated promoting greater awareness of scamming. Chris Woolard, a Director of the FCA, suggested that his organisation could do more to supplement successful public campaigns by working with pension providers, insurers and even banks to combat scamming. Under the current retirement risk warning system, a provider’s mention of investment scams could be a quick mention in a short telephone call. The Chartered Trading Standards Institute (CTSI) called on regulators to require companies to do more to educate on scamming risks and record what customers propose to do with their pension pot, as a bank would with an unusually large cash withdrawal, and report concerns.
24.The pension freedom reforms have increased the prospects of people being conned out of their life savings. Financial scammers are notoriously adept at reinventing themselves to take advantage of such opportunities. But this does not mean scams should be accepted as a fact of life. The Government and the FCA are taking the right approach in promoting awareness as the best weapon against scamming. But they could do more. In particular, pension providers are an underused point of contact, for example when a customer wishes to withdraw funds to invest in a suspicious scheme.
25.We recommend the Government urgently redouble its publicity efforts around pension scams. We further recommend the FCA tighten its scam awareness and reporting requirements for regulated firms. Scams are a tragedy for individual households and undermine trust in the law-abiding and responsible majority in the retirement finance sector. Scammers must be stopped. We will monitor action on pension scamming closely over the course of the Parliament.
47 Financial Inclusion Centre ()
48 HM Treasury ()
49 (Rachel Badger), Q80 (Chris Woolard), Chartered Trading Standards Institute ()
50 (Rachel Badger), Citizens Advice ()
51 (Harriett Baldwin MP)
52 (Chris Woolard)
53 (Chris Woolard)
54 Chartered Trading Standards Institute ()
55 HM Treasury ()
56 (Chris Woolard)
57 (Chris Woolard)
58 (Michelle Cracknell)
59 (Michelle Cracknell)
60 (Chris Woolard)
61 FCA, , PS15/4, February 2015. In addition, in , 1 July 2015 the FCA noted that the average length of a retirement risk warning call was 8.5 minutes.
62 Chartered Trading Standards Institute ()