Skip to main content

In 2015, the Government introduced sweeping changes to pensions, allowing individuals aged 55 and over unlimited access to their pensions savings without penalty. Since these reforms, approximately 1.2 million retirement savers have accessed an estimated £28.4 billion in pension funds. Nevertheless, this has been accompanied by a considerable rise in pension fraud and scams.

A total of £51 million was lost to pension fraud in the first quarter of 2018, compared to £30 million and £24 million in the first quarters of 2017 and 2016 respectively, with scam victims losing an average of £91,000. Since 2015, there has been a 580% increase in ‘red-flags’ raised on pension transfers, such as an unauthorised adviser or suspiciously high fees. These figures need to be taken with some caution, however, as not all ‘red-flags’ end up being fraud or a scam. 

Furthermore, figures from the Financial Services Compensation Scheme (FSCS) show payouts for “pension negligence” increased from £32 million in 2015 to £159 million last year, and complaints over pension transfers increased from 103 in 2016 to over 1,000 in 2018. 

A definitive figure for the number of people affected by pension scams and fraud is difficult to ascertain, something the Financial Conduct Authority (FCA) itself admits. Under-reporting, often due to embarrassment, and the long-term nature of pensions meaning that individuals may not realise they have been scammed for several years, are contributing factors to this. 

Key factors in vulnerability to scams and fraud are an individuals’ lack of information and confidence. Research in 2018 found that 32% of those aged between 45 and 65 would not know how to check whether they are speaking with a legitimate pensions adviser or provider, and a further 12% state that they would trust an offer of a free pension review from someone claiming to be a pension adviser, which is often the start of a scam. 

The Government has recognised this increase in pensions fraud and has taken steps to tackle the problem. In January 2019, it banned companies cold-calling individuals about pensions advice or services, with a potential fine of £500,000 for those caught doing so. It should be noted that this ban does not exclude FCA-regulated and approved firms from cold-calling, which has led to some warnings that the system is still open for abuse. 

The Government also established ‘Project Bloom’ in 2015, a cross-departmental task force to tackle pension fraud, involving the National Crime Agency, the FCA and the Department for Work and Pensions, amongst others. The FCA launched a website called ‘ScamSmart’ in 2014 to help consumers identify scams, and in 2018 launched a TV advertising campaign warning against pension scams. There is evidence that this campaign is raising awareness, with a 462% increase in visits to ScamSmart in the first 55 days after the launch of the campaign.

There is, however, still much to do. FCA research this month estimated that five million pension holders are vulnerable to being scammed. Despite the ban on cold-calls and the aforementioned information campaigns, 23% of those surveyed by the FCA this month said they would talk to a cold-caller about their pensions plans. Worryingly, it was recently revealed by the House of Commons Work and Pensions Select Committee that the FCA has only ten full-time staff committed to pension fraud, although the FCA itself has claimed that there are 100 staff in total “working on pension scams and related issues”. 

Pension freedoms have proved to be a popular policy amongst Britain’s retirees. With this popularity, however, has come the growing threat of fraud. The Work and Pensions Select Committee concluded in a recent report into pensions costs that “scams are not a necessary consequence of the pension freedoms”. Greater awareness of fraud and significant government support for tackling fraudsters will be key factors in combating this crime. 

Sam Lampier is a Researcher at Bright Blue.