13.Over £30 million lost to pension scammers was reported to Action Fraud between 2017 and August 2020. This is the most commonly cited figure for the sale of pension scamming, but it is indisputably an underestimate and is “likely to be the tip of the iceberg.” Mark Steward, Executive Director of Enforcement and Market Oversight at Financial Conduct Authority, told us of a single case involving up to £90 million of pension savings. In its evidence to our inquiry, the Pensions Regulator acknowledged that the lack of definitive figures on the scale of pension scams is an “obvious concern”.
14.Pension scamming is likely to be underreported for a variety of reasons. Tim Fassam, Director of Government Relations and Policy at the trade association the Personal Investment Management and Financial Advice Association (PIMFA), explained that many people do not report scams because they are embarrassed to have fallen victim to them. We were also told that not all funds lost to pension scams are identified in the data. Graeme Biggar, Director General at the National Economic Crime Centre, suggested that some of the underreporting of pension scams was hidden inside investment fraud. The Minister for Pensions and Financial Inclusion raised a further challenge to measuring the scale of pension scams, telling us:
The difficulty with scams is that you do not necessarily know that you have been scammed until potentially many, many years later, which makes understanding the scale of the problem very difficult.
Pensions, by design, are intended for long term saving and a person may go a long time without checking their funds and might not even realise they are a victim of a scam until they attempt to withdraw their savings.
15.The lack of a definitive measure of the scale of pension scams makes it difficult for both the public and policy makers to make an appropriate judgement about the level of concern we should show. The Pension Scams Industry Group, a voluntary body set up to tackle pension scams, raised concerns with us that “limited reporting of scams activity runs the risk of creating a false impression with the public and government that the instance of scams is considerably lower than experienced by the pensions industry itself.” Its research showed that between 0.5 and 12% of all transfers are likely to be scams. An estimate of 5% of all transfers showing typical scam signs would put the value of money lost to scams since 2015 at around £10 billion.
16.Our inquiry has taken place during the covid-19 pandemic and several evidence submissions we received raised concerns about the impact this would have on scams. XPS, a UK specialist in pensions actuarial, investment consultancy and administration, reviewed the destinations of transfers from the schemes it administers, finding a recent increase in the proportion of transfers showing at least one “red flag” that may indicate a pension scam. In July/August 2020 over half of transfers exhibited one of these red flags, compared to 33% in the year to June 2020 and 35% the previous year.
17.Scammers in all industries look to take advantage of new situations and covid-19 potentially offered them new opportunities. Aviva, an insurance and asset management company, explained that:
… the outbreak of the covid-19 pandemic has given fraudsters a relatively convincing opening pitch on “we are phoning to help because we see that the value of your pension savings has gone down … ”.
The Pensions Regulator told us in September 2020 that, at that point, it had not seen evidence of an increase in pension scams, but it had still moved quickly to issue a joint warning about pension scams with the Financial Conduct Authority and Money and Pensions Service.
18.The Association of British Insurers, an insurance industry trade association, told us that covid-19 could make pension scams more prevalent because of the “financial impact that the pandemic is having on many peoples’ lives.” This point was echoed by Andy Agathangelou, founder of the financial services campaigning community the Transparency Task Force, who said “Many people are becoming financially distressed and they therefore become an even easier target for crooks and scammers to approach.” The consumer organisation Which? explained:
With savings rates at rock bottom, company dividends suspended and share prices changing rapidly, pension savers might also be looking for a better return, making them susceptible to fraudsters offering ‘high guaranteed returns’.
Phoenix Group, a FTSE 100 company specialising in the acquisition and management of life and pensions insurance businesses, told us that “The pandemic has shown us that fraudsters will look for every opportunity to exploit the situation for their own ends.”
19.The real scale of pension scamming is undoubtedly much larger than the £30 million reported to Action Fraud, the UK’s national reporting centre for fraud and cybercrime, between 2017 and August 2020. We have even heard examples of individual cases with losses potentially larger than the total amount reported to Action Fraud in those three and a half years. The Pension Scams Industry Group, a voluntary body set up to tackle pension scams, estimates that £10 billion has been lost by 40,000 people to pension scams since 2015. The situation is likely to be getting worse rather than better: scammers in all industries look to take advantage of new situations and covid-19 potentially offered them new opportunities.
20.We recommend that Project Bloom, the multi-agency taskforce set up to tackle pension scams, should develop a range of measures to enable a better understanding of the scale of pension scamming, rather than relying solely on the current Action Fraud data. The lack of a definitive measure of the scale of pension scams makes it difficult for both the public and policy makers to make an appropriate judgement about the priority that should be given to tackling pension scams and the resources they should deploy.
21.There is no universal definition of a pension scam. Much of the evidence we received suggested that the most fitting definition is the one used below by the Pension Scams Industry Group, a voluntary body set up to combat pension scams, namely:
The marketing of products and arrangements and successful or unsuccessful attempts by a party (the “scammer”) to:
a)release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member.
b)persuade individuals over the normal minimum pension age to flexibly access their pension savings in order to invest in inappropriate investments.
c)persuade individuals to transfer their pension savings in order to invest in inappropriate investments.
d)where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.
22.Previously the Department for Work and Pensions and the Treasury have consulted on using the same definition for the multi-agency taskforce Project Bloom. It is chaired by the Pensions Regulator and other partners include the Financial Conduct Authority, Department for Work and Pensions, HM Treasury, the Pensions Advisory Service, the Pension Scam Industry Group, the Insolvency Service, the Information Commissioner’s Office, the National Economic Crime Centre and the National Fraud Intelligence Bureau. The Minister for Pensions and Financial Inclusion described to us some of the problems of agreeing a shared definition:
The difficulty is that the question is: what is crime, what is a regulatory breach and what is what I have described as a matter for civil action? Splitting those particular three things in any professional context is difficult, but it is not impossible.
The Minister explained that different action would be needed in each case, but concluded:
I agree with you that definition would improve, but you have to subdivide that into the different types of particular actions that follow. Other sectors and other professions have done this before and I do not see why we can’t do it.
23.The line between pension scams and other types of investment fraud is not clear cut. M&G PLC, a savings and investment company, told us that it was concerned that “when people speak about a pension scam, they are speaking only about scams which impact directly on money currently held within a pension scheme.” A J Bell, an investment platform, pension provider and investment manager for retail investors, expressed similar concerns that the regulatory focus is too narrow and gave a recent example of scams involving investments into corporate bonds listed on stock exchanges which “would have received very little attention as a pension fraud”. The North East Derbyshire financial planning business, Belmayne Independent Chartered Financial Planners, told us that pension scams “most often take the form of investment into illiquid, unregulated investments, purchased via a regulated pension wrapper, normally a Self-invested personal pension.” The charity Age UK told us that “ … there is often a fine line between a ‘dodgy’ yet legal investment, and something illegal” such as a risky product with exorbitant fees. The Association of British Insurers, an insurance industry trade association, said that “Government and regulators should be clear that high-risk, illiquid unregulated investments of this kind are scams and are unsuitable for a pension.”
24.Unscrupulous actions to profit from pension savings are not solely restricted to illegal activity. The trade association PIMFA warned us and other policy makers of the potential consumer harm of investments made through strictly legal means. Pressurised sales tactics or unrealistic offers of returns may lead people “to ‘mis-buy’ products due to their inability to navigate the complexity of the retirement market owing to a lack of engagement and support.” Professor Nicholas Barr told us that “Some suppliers exploit their superior knowledge to increase profits” and that “Many workers and pensioners lack the technical skills to make those choices well (‘can’t’), and some with the necessary technical skills do not devote sufficient continuing attention to the management of their pension savings (‘won’t’).”
25.The pension freedoms have meant that scammers no longer need to access pension savings directly from a pension scheme. After age 55 a person can withdraw their pension savings in cash with one action and then transfer it to the scammer with a second. The consumer organisation Which? told us that the current definition fails to cover scams which occur after someone has accessed their pension pots and moved their savings to a current account. This can lead people vulnerable to “losing large sums of money to a whole range of scams such as romance scams and impersonation scams.” Which? acknowledged that “a broader definition would overlap with other types of fraud” but believes that it is crucial to understand the full “customer journey”. Rachel Vahey, Senior Technical Consultant at A J Bell told us that a narrow definition of pension scams “will be counterproductive, it will be restrictive and we would find that scammers would take steps to make sure they didn’t fall into whatever that definition of pension scams was” and suggested that there should be an overarching role in Parliament, such as a Minister for Scam Prevention.
26.At present there is no universal definition of pension scams and the range of potential activity which could be classed as a scam runs from sharp practice all the way to outright fraud. Project Bloom, the multi-agency taskforce set up to tackle pension scams, uses a broad definition of pension scams which has been developed by the Pension Scams Industry Group. We recommend that Project Bloom should continue to use the Pension Scams Industry Group definition of pension scams, which should be treated as the industry standard. Members of Project Bloom may need to use different definitions within their own settings—for example, to avoid double counting a case of investment fraud under several different categories—but they should record data in a way that is compatible with the definition used by Project Bloom.
27.Many victims of pension scams never report that they have been scammed or do not do so until a long time after the scam has taken place. According to a recent survey by Aviva, an insurance and asset management company, half of pension scam victims do not do so, mainly because they do not know whom to approach or because they do not believe that their cases would be investigated. Phoenix Group, a FTSE 100 company specialising in the acquisition and management of life and pensions insurance businesses, told us that “Many victims are extremely reluctant to admit that their investment may have been a scam and that they have been duped.” Some victims of liberation scams are worried about unauthorised payment tax charges, but many others will be unaware that they have been scammed until they try to access their pension.
28.Despite fraud accounting for a third of reported crime, Graeme Biggar, Director General or the National Economic Crime Centre, told us that it has “less than 1% of police dedicated to looking at it.” Action Fraud is the UK’s national reporting centre for fraud and cybercrime. Action Fraud was established in 2009 in response to Lord Goldsmith’s 2006 Fraud Review, which recommended that a national reporting centre with the capability of screening and allocating cases to forces should be set up. An investigation by the Times into Action Fraud published in August 2019 found that:
Call handlers who take victims’ reports after only two weeks of training are coached to mislead callers into thinking that they are talking to police officers.
They decide during calls whether or not to classify victims’ cases as crimes but are told never to reveal this to victims.
Undercover filming shows the outsourced staff taking fraud calls while scrolling through their phones, napping and play-fighting.
Managers say that the police “do absolutely everything in their power to avoid” investigating fraud cases.
The investigation also found that, of the 500,000 reports made to Action Fraud each year, half are classified as crimes and the rest as “information reports” which are rarely revisited. In 2018 an algorithm selected 117,412 of these to be reviewed by the National Fraud Intelligence Bureau. Of these 37,590 were passed to the police, of which 10,473 were solved.
29.In response to the investigation a review was commissioned which reported in January 2020. The review found that:
a)Action Fraud’s operations are significantly hampered by an operating system that is not fully functional and their resourcing levels have not kept pace with increased reporting.
b)Concern about the sustainability of a system that is dependent on the 43 police forces in England and Wales to investigate allegations of fraud properly. Rarely is fraud identified as a priority in forces; only a small proportion of officers are involved in fraud investigation; they lack the skills to investigate complex cases; and there is no certainty that cases will conclude with positive outcomes.
c)A number of people had been dismissed, left the service or had been warned for their behaviour in response to the Times investigation.
d)Action Fraud has an enthusiastic workforce of mainly young people starting out on their career, who are aware of the standards of behaviour expected of them.
The review set out concerns about:
… the operational pressures that are being experienced in Action Fraud. When compared to call centres in the police service and the commercial sector, Action Fraud is falling behind industry standards. Callers wait a long time to be answered, over a third of them hang up, call handlers have far fewer rest breaks and high staff turnover suggests that long-term employment is not an attractive proposition.
30.Commander Blackburn, National Coordinator for Economic Crime, City of London Police, told us:
… we expect a very high level of service from the contractors that supply our call-handling service, and we do not tolerate what played out in the newspapers in 2019. Some very swift dismissals took place following that and an improvement plan was put in place with 81 applicants, which covered a number of themes, including recruitment, training, culture and processes. I am pleased to say that 95% of those now have been completed. Through the City of London police, the Police Authority Board commissioned what is known as the Mackey review and that was published in January . That made 15 recommendations for areas of improvement, eight of which have now been implemented to date.
Commander Blackburn added that:
Since 2019 when this broke in the press, from the cohort of victims that have reported, satisfaction rates have been no less than 90% and up to 97% as it stands now.
31.The expectation of many scam victims is that when they make a report to Action Fraud it will be acted upon. It is hardly surprising that they are left disillusioned when this does not happen. Richard Piggin, Head of External Affairs and Campaigns at the consumer organisation Which?, said:
The key point here is that the disparity between people’s expectations and the actual reality is so stark. Consumers who have fallen victim to scams will expect to be able to report it, will expect that report to be acted on, to be investigated, to be contacted, perhaps by their local police force, and the perpetrator brought to justice. In reality, it is reported to Action Fraud. Action Fraud has no investigative powers. Reports are screened and scored by artificial intelligence. The vast majority of these do not get passed on to local police forces and even those that do often do not get followed up and limited action is taken. This erodes trust in the system and it might even put off people from reporting it in the first place because they do not see any action being taken.
Pension scam victim Sue Flood told us about the difficulties she had engaging with Action Fraud:
I actually, at the outset, had a breakdown about this. I was left completely on my own. Action Fraud is a data processing department and they don’t engage and they don’t offer support. No support was available. The only support that we have ever had was in 2013 when myself and other victims were all together in what was called an Ark class action group. We then facilitated other victims and joined other victims together over the years. No, pretty much everyone I know is highly critical of Action Fraud because it does not seem to take any action.
Pension scam victim Dennis Waite described a similar lack of support:
When I first reported what had happened to me, it said, “Will you need victim support?” and I accepted. It was basically, as I said earlier, “Oh, you poor thing, it must be terrible,” but that really did not help me. As I am approaching my retirement age, it is starting to affect me more because I am thinking about what it could have been, so I am still, after all these years, struggling.
32.We put the criticisms of Action Fraud to Pauline Smith, Director at Action Fraud, who told us:
First, I would like to say I am very sorry about both of their experiences, Dennis and Sue.
We recognised, from the City of London Police, very early on, when we took over the service in April 2014, that certainly the victim care side—the victim-centric side of the Action Fraud service—really was not there. It was more a recording service. Very early on, in 2015, we set up an Economic Crime Victim Care Unit, which, as Dennis has just said, is not the victim care service that he experienced. Our victim care service was set up as a very early pilot in London to start with, to see if we could support victims of not just pension fraud but all types of fraud and cyber- related crimes, to see if we could support them on the phone, and to see if we could help them cope and recover but, more importantly, to see if we could also stop them becoming repeat victims.
The pilot is now working with 18 forces across the country. Pauline Smith told us that it had supported 81,000 victims and only 17 of those had reappeared on the database.
33.We have been told that Action Fraud has improved significantly since the investigation by The Times, but that there are areas where progress still needs to be made. Richard Piggin told us:
We would like to see more done to work with those victims to prevent reoffending, but also to rebuild their confidence and trust in engaging with the financial services industry in the future.
The Minister for Pensions and Financial Inclusion told us that Action Fraud is not an area over which he has ministerial control, but added:
I would make a couple of quick comments, though. The first would be that I do feel that since The Times report—whether that is right or wrong, I do not know—there is no doubt, and I read the evidence of the gentleman who came along from Action Fraud to give evidence to you, that that has shaken them up and they have looked again at the way in which they are working, there is no question. That was the essence of what he was saying.
The data from Action Fraud is clearly really good data. Are we using that well enough? In my view, we can use it in a better way. I do believe we can share it with industry in a data-appropriate way, and we can share it with regulators in a better way. One of the key lessons from all of this process is: try to build on what you have. What we have is Action Fraud, which has a lot of data. We just need to use it in a better way.
34.Many victims of pension scams never report that they have been scammed. Others report a long time after it has taken place. Scam victims reasonably expect that, when they make a report to Action Fraud, it will be acted upon. They are understandably left disillusioned when this does not happen. A 2019 investigation by the Times found serious failings at Action Fraud, the UK’s national reporting centre for fraud and cybercrime. Representatives of Action Fraud were able to speak positively about improvements made to the service since 2019, but there is a long way to go before it can regain the faith of victims and the wider public. We recommend that Action Fraud should be accountable to Project Bloom, or any successor organisation, for its work on pension scams. A failure to manage victims’ expectations, an investigation by the Times and a lack of action on cases has left Action Fraud with a tattered reputation. The City of London Police should make annual reports to Parliament on efforts to repair it.
35.The aftermath of a pension scam can leave a victim needing to deal with several different bodies without much guidance or support. For many victims Action Fraud is the first point of contact and for those for whom it is not, it should be. We recommend that Action Fraud should have a coordinating role for pension scam victims. Anyone who contacts Action Fraud should not be required to self-direct to other bodies which may be able to help them and instead Action Fraud should set up initial appointments for them. If a potential scam victim contacts a body other than Action Fraud their case should routinely be recorded with Action Fraud, which should signpost the relevant support available.
36.We heard repeatedly of a worrying trend of secondary scammers—that is, scammers targeting people who have already been the victim of a pension scam. People who have not reported their case to an appropriate body or who have done so but not received appropriate warnings may be unaware of the risk secondary scammers pose. The Association of British Insurers, an insurance industry trade association, told us:
We are aware of a sudden increase in Claims Management Companies (CMCs) making claims against ceding schemes or advisers on behalf of victims for allowing bad transfers to go ahead. Astoundingly, these CMCs are sometimes set up by the same individuals as the companies that encouraged the transfers in the first place.
The Financial Conduct Authority, which became responsible for the regulation of Claims Management Companies in April 2019, told us it has “received a steady flow of consumers reporting that they have been cold-called by firms regarding mis-sold pensions.” These cold-callers then ask for an advanced fee to recover lost investments. It also told us that it had also seen “phoenixing”—closing a firm and re-appearing under a new guise to avoid liabilities—in this area:
We have seen instances of financial advisers leaving failed or failing financial advice firms that have run up liabilities to customers through providing poor advice–often in relation to pension transfer advice - and re-emerging directly, or via associates, in CMC to pursue claims against the advice that they themselves have given.
37.We heard repeatedly about a worrying trend of secondary scammers—scammers targeting people who have already been the victim of a pension scam. People who have not reported their case to an appropriate body—or who have done so but not received appropriate warnings—may be unaware of the risk that secondary scammers pose. It can take many years before a person realises that they have been scammed. Once they do realise, if they do not seek the right help they are at risk of falling prey to secondary scammers. We recommend that the Pensions Regulator and the Financial Conduct Authority should use their scams awareness campaign, ScamSmart, to warn of the risk of secondary scammers.
38.We return to ScamSmart in Chapter 3 of this Report.
39.The pensions industry itself has the potential to be a valuable source of information about scams. As part of a panel representing Project Bloom, Nicola Parish, Executive Director of Frontline Regulation at the Pensions Regulator, told us that the industry should be reporting scam activity to Action Fraud and that this is what had been set out in the code of practice developed by the industry through the Pension Scams Industry Group.
40.The evidence we received from witnesses in the pensions industry, however, showed uncertainty about the role of Action Fraud and a perception from the industry that Action Fraud is only intended to be used by individuals who have been scammed. Nita Tinn, Chair at the Association of Professional Pension Trustees, told us that until someone had actually suffered fraud they will not “really [be] able to get very far with Action Fraud” and that trustees would generally contact the regulator first. Brian Thorne, Principal at the professional services consultancy Barnett Waddingham, , said that it would be easier to have one central mechanism of reporting, which “may well increase the number of reports made.” Rachel Vahey, Senior Technical Consultant at A J Bell, an investment platform, pension provider and investment manager for retail investors, told us that better definitions and guidance on what can be reported and how it can be reported would be welcome. Action Fraud’s own website reinforces this perception, saying that:
Action Fraud is the UK’s national reporting centre for fraud and cybercrime where you should report fraud if you have been scammed, defrauded or experienced cyber crime in England, Wales and Northern Ireland.
41.Margaret Snowdon, Chair of the Pension Scams Industry Group, explained the difficulties of reporting a scam to us:
Action Fraud—and we have been quite public about this—is not currently fit for purpose in terms of defending or following up on pension scams. Really the system is at fault. That is where the problems lie. The system for reporting is very cumbersome. It is focused on individuals reporting, so it does not take reports from practitioners who are at the sharp end and see most of the suspicious activity and would love to be able to report it. There is almost a resistance to schemes and practitioners reporting to Action Fraud.
When you try to report to Action Fraud, it asks for the details of the victim. When a transfer has not yet happened, there is no victim.
Margaret Snowdon went on to explain that Action Fraud is geared towards viewing pension fraud as pension liberation, but that this is no longer true of the vast majority of pension scams. A J Bell warned in its written evidence that Action Fraud is at risk of missing widespread scams if “several different sources are reporting scams in slightly different ways or referring to slightly different models, with the result that no action is being taken on investigating these scams”. The Pensions Regulator told us:
Above all, we want the pensions industry to report suspected scams. We are currently working with PSIG and the industry to understand how the industry could be better mobilised to do so. There is no requirement for industry to report pension scams—we believe this is also worth considering.
When asked how the industry should report suspicious activity, Commander Blackburn, National Coordinator for Economic Crime, City of London Police, told us:
Quite simply, Action Fraud, and that can be reported either by phone or website. This is absolutely vital because this is how we build a rich intelligence picture about what is going on across the UK. Victims must also contact their pension provider, again another really important thing to do because there may be potential to stop that transfer from occurring. Thirdly, pension scheme companies can also report as a third party proxy on behalf of their clients using the Action Fraud reporting tool, the business tool.
42.Pension firms can and should report suspect scams directly to Action Fraud. But we heard extensive evidence from the pensions industry that they are not sure where or how to report pension scams or suspected scams and that they are in fact sometimes discouraged from doing so. Action Fraud’s own website creates a confusing impression that it is intended only for use by scam victims. We recommend that Action Fraud should make it clear that the industry should make reports of scam activity to Action Fraud and should provide clear guidance and an effective tool for the industry to do so. The member organisations of Project Bloom should ensure that they provide clear guidance to the industry about how to report suspected scam activity.
43.The pensions industry does not universally share information about possible scams and current trends amongst providers and schemes. There are voluntary ways in which information can be shared, including through the Pension Scams Industry Group and the forum it supports—the Pension Scams Industry Forum—but such information sharing is not mandatory.
44.We heard several similar proposals to encourage the industry to share information about pension scams throughout our inquiry. The Police Foundation, a policing think tank, in its report, Protecting people’s pensions: Understanding and preventing scams, recommended that a central intelligence database should be set up for the industry. Rick Muir, Director at the Police Foundation, told us that this proposal could be pursued on a voluntary basis in the first instance, but if that did not prove to be effective, then Government and Parliament could take action. Mercer, a health, retirement and investments consultant which is already part of intelligence sharing initiatives like the Pension Scams Industry Group and Forum, suggested that the Pensions Regulator and Financial Conduct Authority could set up a similar service with subscribing organisations paying fees to cover the cost. Phoenix Group, a FTSE 100 company specialising in the acquisition and management of life and pensions insurance businesses, told us that a pension scams intelligence database would mean that “Trustees and providers would not be solely reliant on the intelligence gleaned from their own, individual experience of transfers of concern and could benefit from the information input by others.”
45.The Pensions Regulator is supporting efforts to encourage the pensions industry to share information about pension scams. Nicola Parish, Executive Director of Frontline Regulation at the Pensions Regulator, told us that it has been running a campaign to encourage the industry to join the Pension Scams Industry Group. As of January 2021, 100 organisations had signed up to the Pensions Regulator’s pledge campaign. To make the pledge, trustees, providers and administrators pledge to follow the Pension Scams Industry Group code of Good Practice and commit to:
The Pensions Regulator also told us that the “pensions industry could learn from good practice in other areas of the finance sector” such as the not-for-profit organisation Cifas which manages a fraud database for member organisations from all sectors. The Minister for Pensions and Financial Inclusion also supported the idea of the industry sharing data through the Pension Scams Industry Group, but told us that take up would need to be higher for it to be successful:
The striking thing for me is this. PSIG has done a very good job. There were about 44 different organisations who were part of its data sharing, and that is now up to about 50, but the practical reality is you would need about 200 of the organisations that are part of industry for there to be real coverage of every part of that industry.
46.The pensions industry does not universally share information about possible scams amongst providers and schemes. Information can be, and is, shared voluntarily, including through the Pension Scams Industry Group and the forum it supports—the Pension Scams Industry Forum. We recommend that Project Bloom should facilitate industry intelligence sharing and that the Government should legislate to require industry participation in intelligence sharing at the next opportunity.
47.We welcome the fact that the Pensions Regulator is supporting efforts to encourage the pensions industry to share information about pension scams through its pledge to combat pension scams campaign, which was launched in November 2020. We would like to see all of the pensions industry sign the pledge. We recommend that Project Bloom should actively encourage the pensions industry to sign up to the pledge. The Pensions Regulator should monitor and report twice annually to this Committee on the effectiveness of its pledge to combat pension scams.
48.Pension scammers do not confine themselves to the borders of the UK. Many of the cases we heard about took place across several countries, making enforcement more complicated. Tim Fassam, Director of Government Relations and Policy at the trade association the PIMFA, gave us examples of ‘sharp practice’ in overseas investments, such as real estate and storage containers, and told us “ to have any chance of recovering this money that has been transferred overseas it will require law enforcement to work cross-border.”
49.Qualifying recognised overseas pension schemes (QROPS) are overseas pension schemes which meet the requirements set by HMRC to receive transfers of benefits from the UK. They serve a legitimate purpose for UK citizens who move abroad, but they have also been used as a vehicle for pension scams. M&G PLC, a savings and investment company, told us that QROPS were often a feature of pension liberation scams but explained that more recent pension scams tend to involve international self-invested personal pensions (SIPPs). Manita Khuller, who had been the victim of a pension scam, told us that both QROPS and SIPPs are “where pension scammers have operated to a greater extent and continue to do so, operating outside UK FCA regulation.”
50.There are suggestions that requirements for savers to receive better advice would reduce cross-border pension scamming. Mercer, a health, retirement and investments consultant, suggested that it should be a requirement for all overseas pension transferees to take Financial Conduct Authority (FCA) regulated advice. M&G PLC told us that often overseas advisers are not regulated by the FCA and “may not be regulated by their own regulator”. There are concerns that firms in the UK may have to pick up the cost of such scams, because the compensation is funded by an industry levy. One financial adviser told us “Many of us were horrified when the [Financial Services Compensation Scheme] started compensating people abroad, where the “advice” was given abroad and the adviser had never been regulated in the UK.”
51.We note that, since the introduction of a potential 25% charge on many QROPS transfers in March 2017, there has been a significant fall in the number of transfers to QROPS. The number of transfers to QROPS fell from a high of 20,100 in 2014/15—with a value of £1,760m—to 4,400 in 2019/20, with a value of £550m. Margaret Snowdon, Chair of the Pension Scams Industry Group, told us that this was because HMRC introduced new requirements which made it more difficult to transfer pensions overseas. She added, however, that there has been an increase in “people who may be conned, being advised by advisers who are based overseas, and also to invest in overseas investments that are unregulated.”
52.Pension scammers do not confine themselves to the borders of the UK. Many of the cases we heard about took place across several countries, making enforcement more complicated. We note that since the introduction of a potential 25% charge on many qualifying recognised overseas pension schemes transfers in March 2017, there has been a significant fall in the number of transfers to these schemes, which have been a vehicle for scams in the past. But there remain problems with unscrupulous—and often unregulated—advisers based outside the UK. Cross-border co-operation remains important, as the involvement of firms or investments based abroad is a common feature of many scams. We recommend that the Money and Pensions Service should run—and report on—a programme to encourage eligible expatriates to access the free guidance it offers through its new consumer facing brand MoneyHelper when it launches in June 2021.
10 Financial Conduct Authority, , 25 August 2020
11 Aries Insight ()
13 The Pensions Regulator ()
17 The Pension Scams Industry Group ()
18 The Pension Scams Industry Group’s scam code has a detailed due diligence process for identifying red flags. Some typical red flags might be incorrect or missing registrations or individuals/firms showing up on lists of known scams.
19 XPX Pensions Group ()
20 Aviva ()
21 The Pensions Regulator ()
22 Association of British Insurers ()
24 Which? ()
25 Phoenix Group ()
26 The Pension Scams Industry Group ()
27 , 21 August 2017
30 M&G PLC ()
31 A J Bell ()
32 Belmayne Independent Chartered Financial Planners ()
33 Age UK ()
34 Association of British Insurers ()
35 Personal Investment and Financial Advice Association ()
36 Professor Nicholas Barr, London School of Economics ()
37 Which? ()
39 FT Adviser, ‘, 22 July 2020
40 Phoenix Group ()
42 The Times, , 15 August 2019
43 Sir Craig Mackey QPM/Jerry Savill, , 24 January 2020
53 Association of British Insurers ()
54 Financial Conduct Authority ()
55 Financial Conduct Authority ()
60 Action Fraud, , Accessed 24 March 2021
62 A J Bell ()
63 The Pensions Regulator ()
65 The Police Foundation, , September 2020
67 Mercer Limited ()
68 Phoenix Group ()
70 The Pensions Regulator ()
73 M&G PLC ()
74 Manita Khuller ()
75 Mercer Limited ()
76 M&G PLC ()
77 Name Withheld ()
78 HMRC, , 31 July 2020