Protecting pension savers—five years on from the pension freedoms: Pension scams Contents

Conclusions and recommendations


1.People save for retirement and later life in many different ways, not solely through their pensions. During the course of our inquiry we have been contacted by a number of people who have lost savings, other than pensions, which were intended to support them in retirement. (Paragraph 10)

2.The pension freedoms gave people more choice in how they use their money to meet their own needs. However, by offering pension savers access to a much wider range of investments, the freedoms also removed much of the distinction between pension scams and other types of investment and financial fraud. More than five years on from the introduction of the pension freedoms, the Government and the regulators are still putting in place the necessary support framework to protect pension savers. They must now act quickly and decisively. (Paragraph 11)

3.We recommend that DWP should publish details of its plans to co-ordinate work with the Treasury to combat pension scams as a matter of urgency. Following the introduction of the pension freedoms there is now less practical distinction between the areas of Treasury responsibility, including investments and advice, and DWP’s role in combatting pension scams. (Paragraph 12)

Recording and reporting

4.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. (Paragraph 19)

5.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. (Paragraph 20)

6.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. (Paragraph 26)

7.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. (Paragraph 34)

8.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. (Paragraph 35)

9.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. (Paragraph 37)

10.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. (Paragraph 42)

11.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. (Paragraph 46)

12.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. (Paragraph 47)

13.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. (Paragraph 52)


14.The Pension Schemes Act 2021 will allow people’s statutory right to transfer from their pension scheme to be restricted where there are signs of a pension scam. Regulations will be developed by DWP and are expected to be in place later this year. This will be a significant step in preventing pension transfer scams. Pension scheme trustees will be required to check if a transfer showed signs of a pension scam before allowing it to take place. If a trustee, through a lack of due diligence, allowed a transfer to a scheme which showed signs of being a scam then we believe that the Pensions Ombudsman must be able to require the scheme to compensate the victim. We recommend that a review of the legislation should be published within 18 months of the regulations being operational. If there are any concerns about the operation of the policy this will allow legislative changes to be made during this Parliament. (Paragraph 61)

15.The regulations will identify potential indicators of a pension scam which would raise either red or amber flags. A red flag would allow a transfer to be blocked and an amber flag would allow a transfer to be paused until a person has received appropriate guidance. The red and amber flags being drawn up by the Department will need to strike a careful balance between protecting savers, being easily used by trustees and not being overly restrictive. We recommend that the suitability of the red and amber flags should form part of the 18 month review and then be reviewed at least every 3 years thereafter. (Paragraph 62)

16.The FCA hosts a warning list on its website. The warning list publishes details of unregulated entities which appear to be carrying out an FCA regulated activity without the requisite authorisation or permission. The Minister for Pensions and Financial Inclusion told us that the powers under section 125 of the Pension Schemes Act do not allow a transfer to be blocked by a warning list operated by a third party organisation, such as the FCA. We recommend that inclusion on the FCA warning list should constitute a red flag. If this is not possible, then the red flags developed by DWP should be defined in such a way that any firm or individual appearing on the FCA warning list would trigger a red flag. (Paragraph 63)

17.The move online by pension scammers has been a recurring theme of our inquiry. Regulators appear powerless to hold online firms to account for hosting scam advertisements in the same way they would be able to for traditional media. Scammers using paid-for online advertisements appear to be particularly hard to tackle without the co-operation of the hosting firm. It is immoral that tech firms such as Google are accepting payment to advertise scams, and then further payment from regulators to warn about the scam. It should not require legislative solutions to deter global firms from benefitting from the proceeds of crime, but unfortunately legislation is clearly needed. We recommend that, in order to create parity between traditional media, such as TV and newspapers, and new media, including search engines and social networks, paid-for advertising on online platforms should be covered by the regulatory framework for financial promotions. This would require online publishers to ensure that any financial promotion which they communicate has been approved by an authorised person or is exempted from the financial promotions regime. (Paragraph 73)

18.On 15 December 2020 the Government announced its decision to bring forward legislation for the Online Safety Bill but also signalled its intent to exclude financial harms from the scope of that legislation. It is notable that several public bodies, including the Financial Conduct Authority and National Economic Crime Centre, are openly saying that there is a better approach for the Government to take than the one it has chosen. We recommend that the forthcoming Online Safety Bill should legislate against online investment fraud. (Paragraph 74)

19.In the period between now and any legislation coming into force, we recommend that voluntary codes of conduct should be developed by search engines and social networks which make it clear that a request from a UK-based regulator is sufficient to remove a scam advertisement. (Paragraph 75)

20.Since 2014, the FCA and the Pensions Regulator have been running ScamSmart campaigns to alert people to the risks of scams. The campaigns have made effective use of limited resources to target groups vulnerable to scams. We recommend that Pensions Regulator and FCA should continue to run the ScamSmart campaign, while regularly evaluating whether it is reaching the right groups and whether it has the necessary resource to do so effectively. (Paragraph 79)

21.When someone is looking for support to help them make a decision about their pension they can seek either advice or guidance. These are both important tools to prevent scams, with earlier intervention likely to lead to better outcomes. Advice is a personalised recommendation which can only be provided by regulated individuals and firms. Guidance is a broader term which includes general information and signposting about pensions. This difference is not always understood by consumers and can be exploited by scammers. (Paragraph 90)

22.When the pension freedoms were introduced, a guidance guarantee was presented as a key pillar of the reforms supporting people making use of the new range of choices available to them. Everyone with a defined contribution pension is entitled to free impartial guidance from Pension Wise when they come to access their pension. The Minister for Pensions and Financial Inclusion has agreed that having a Pension Wise appointment should be the norm. We recommend that DWP should set out a plan for how this will be achieved and a timetable for getting there. Pension Wise is an important tool to prevent scams and we will look further at its role, within the new MoneyHelper brand, in the next part of our inquiry on accessing pension savings. (Paragraph 91)

23.We recommend that the Department for Work and Pensions should consider the options available for the Money and Pensions Service to offer enhanced guidance or limited advice, including through technological solutions. Regulated advice comes at a cost to savers, which can be a barrier for many, whereas the guidance currently provided may not be enough for some people to avoid them becoming a victim of a scam. We have asked for views on this in the call for evidence for the second part of our inquiry which will look at how people access pension savings. (Paragraph 92)

24.The pension advice allowance allows members of defined contribution and hybrid pension schemes to withdraw £500 from their pension up to three times in different tax years for advice. There appears to have been little take up of the Pension Advice Allowance which has been set at too low a level. We welcome news that HM Treasury is reviewing this policy after the Minister for Pensions and Financial Inclusion told us that it will consider the policy’s effectiveness as part of its wider work on the financial advice market. We recommend that the overall cap of £1,500 should be reviewed and the annual cap of £500 on the amount which can be withdrawn in any one year under the pensions advice allowance should be removed. (Paragraph 93)


25.There are many bodies with potentially overlapping enforcement responsibilities relating to pension scams. These include, but are not necessarily limited to: the Pensions Regulator, the FCA, the Insolvency Service, HMRC, Information Commissioner’s Office, the police service, the Serious Fraud Office, the Pensions Ombudsman and the Financial Ombudsman Service. The fragmentation of reporting, investigation and enforcement around pension scams has made tackling pension scams more difficult. We recommend that, as the taskforce responsible for coordinating the response to pension scams, Project Bloom should publish an accessible and publicly available document outlining the roles and responsibilities of all bodies involved in tackling pension scams. It should also report annually on the amount lost by, and reimbursed to, pension savers. (Paragraph 111)

26.The FCA told us that there have been a very large number of prosecutions involving scams and unauthorised business. We do not agree with this assessment. Its own figures—revealed only through Freedom of Information requests—show that there were just 25 convictions. We have heard numerous criticisms that the FCA is not effective in stopping scams, punishing scammers or retrieving scam proceeds. There is a compelling case for a much more ambitious approach. We recommend that the FCA publish a costed plan to raise its game in tackling scams. It should also publish proactively data about its enforcement action, rather than waiting for Freedom of Information requests. (Paragraph 112)

27.We have heard devastating evidence from pension scam victims who were persuaded to hand their savings over to a scammer because the scam pension scheme was registered with HMRC. We welcome the action that has led to a reduction in cases such as this. HMRC should make clear that a tax reference is not any endorsement of a given scheme. (Paragraph 113)

28.Regulators exist to protect savers and not enable scammers. Where a regulator has failed in this fundamental duty they should be held accountable. We recommend that the Government review the recourse available to pension scam victims when the actions of a regulator have been beneficial to the scammer. (Paragraph 114)

29.The pensions and wider financial services industry has a strong reputational interest in preventing scams. The regulators responsible for protecting the reputations and consumers of these industries are largely levy funded to meet this interest. Levy payers, particularly those regulated by the FCA paying into the Financial Services Compensation Scheme, have seen their costs rise in recent years and rightly expect the regulators demonstrate that levies are both set at a reasonable level and spent effectively on enforcement action. If regulators were more effective in preventing pension scams, then the need for compensation would be reduced and the levy on the industry would be lower. (Paragraph 115)

30.Project Bloom is a multi-agency task force set up to tackle pension fraud in 2012. It is not a statutory body and receives no dedicated funding. The members of Project Bloom have argued convincingly to us that it has the potential to be an effective body but is restricted by limited resources. The Pensions Regulator and other organisations suggested to us Project Bloom should also be supported by a pension scams hub staffed by officials from the different members of Project Bloom working alongside law enforcement. (Paragraph 119)

31.The establishment in 2012 of Project Bloom, the multi-agency task force set up to tackle pension fraud was an attempt to overcome this. We support the creation of Project Bloom, but it has become clear that it does not have the capacity in its current form to achieve its objectives. It must now be given a statutory remit, an appropriate name—we propose “the Pension Scams Centre”—dedicated funding, and the staffing to manage a pension scams intelligence database alongside law enforcement. To avoid the risks of creating yet another regulatory body in an already crowded field, we recommend that the new Pension Scams Centre should have a board made up of representatives of Project Bloom’s current member organisations, with oversight of a pension scams hub. The hub’s responsibilities would include facilitating intelligence-sharing within the pensions industry and between regulatory bodies. The funding for both bodies should be ringfenced from existing budgets. The new organisation should consult on a public strategy with clear targets for reducing the incidence of pension scams and publish data demonstrating its success—or otherwise—in achieving these targets. (Paragraph 120)

Supporting with pension scam victims

32.As well as ruining someone’s financial future, a pension scam can leave them with large unexpected tax bills. Pension liberation scams often involve scammers claiming that there are legal loopholes, such as loans or cash incentives, which can allow a person to access their pension early, before the age of 55, without the victim having to pay tax. This is not correct. Someone who accesses their pension early faces an unauthorised payment charge of 40% and an unauthorised payment surcharge of 15%. These penalties are intended to act as a deterrent, but do not work in cases where a scammer has convinced a potential victim that the charge will not apply. We recommend that, where someone is seeking to transfer or access their pension before the age of 55, pension schemes should be required to inform them, in a clear and accessible format, about the unavoidable tax charges they would face if they access their pension early. For people who access their pensions after this requirement has been introduced, it would be reasonable for HMRC to collect the tax due—unless it can be proved that the requirement was not adhered to. (Paragraph 131)

33.HMRC has been described as “unrelenting and uncompromising” in the pursuit of unauthorised payment charges. While the position taken by HMRC is legally correct, it has often lacked empathy or understanding of impact that its demands have on victims. We recommend that HMRC should make greater use of its current discretion to support pension scam victims left owing large tax bills and that it should do its upmost to provide them certainty where possible. HM Treasury should recognise that, in some clearly defined circumstances, where the saver has been the victim of a crime and made no financial gain from the early access, it may not be in the public interest to demand payment of tax due. Where someone seeks to access their pension before the age of 55 without being eligible for one of the exemptions, we recommend that the pension schemes be required to withhold the Income Tax and surcharge and pay this to HMRC. In the event that the tax is not due, the individual could reclaim it from HMRC. This would ensure that victims of scams would not be subject to a tax bill on top of their pension loss. If a person has made a financial gain from early access, but can demonstrate that they have been the victim of a crime, they should be given the option to return the gains to an approved scheme within three years of the point at which they ought to have realised they have been scammed. If HMRC is unable to make greater use of its current discretion to waive the tax due by pension scam victims then the Government should consider whether legislation is required to give HMRC the option not to pursue the tax penalties of pension scam victims. (Paragraph 132)

34.We recommend that HMRC should re-join the pension scams taskforce Project Bloom. It was a founding member when Project Bloom was set up in 2012 but has since left. The Minister for Pensions and Financial Inclusion told us that he “100%” supports HMRC re-joining Project Bloom. We agree. (Paragraph 135)

35.Where a pension scheme has been used as a vehicle for a pension liberation scam the Pensions Regulator will appoint an independent trustee. The trustees management fees and associated legal costs will be met directly from the scheme’s assets, which often need to be recovered first by the trustee. With one professional trustee being appointed to the vast majority of schemes and a number of complaints from victims about these fees and the quality of communication we welcome the offer from the Department to look at this market. In a larger market, complaints about the communication and fees paid to professional trustees might be corrected by competition. We recommend that the Pensions Regulator should review the value for money that scam victims get from trustees appointed to scam schemes within a year. (Paragraph 143)

36.Members of schemes where professional trustees are appointed can face long waits to receive any recovered assets, even if a significant proportion of the assets are recovered. Often because of the costs associated with providing communications to members, which are met directly from the recovered assets, scam victims perceive communication from professional trustees as poor. We acknowledge that professional fees in this market face a trade-off and that better communication inevitably results in higher fees. We recommend that the Pensions Regulator should explore the case and make a recommendation to DWP for allowing members to more easily transfer out of a scheme where a professional trustee has been appointed before all of the assets are recovered, if this would be in the member’s interest. (Paragraph 144)

37.Being a victim of any fraud can be devastating. Pension scams often involve the loss of a lifetime’s savings and many of the plans people have made for their later life. Victims of pension scams suffer lifelong financial harm and potential lifelong impact on their mental wellbeing. We recommend that DWP should lead in the creation of a strategy to ensure that all pension scam victims are offered, and encouraged to take, support for both the financial harm and psychological distress caused by pension scams. Support for financial harms could be delivered through the Money and Pensions Service’s new consumer facing brand MoneyHelper when it launches in June 2021. Support for psychological distress could be delivered jointly with other Government departments to signpost relevant services. (Paragraph 148)

Published: 28 March 2021 Site information    Accessibility statement