According to XPS, the pensions consultancy firm, in July and August of this year 51% of pension transfers, equating to twenty five million pounds in pension savings, were flagged as at risk of a pension scam.
The number of transfers showing at least one red flag has dramatically increased during the COVID-19 pandemic. In 2016, only 13% of pensions’ transfers triggered a red flag. This figure rose to 33% at the end of June 2020 and then jumped considerably to just over half in July/August 2020.
In addition, the industry has seen a change over the past few years, in the type of ‘red flag’ triggers indicating that a pension transfer may be a scam. XPS notes that whilst the number of red flag cases relating to individuals targeted with cold calls fell from 22% in 2016 to 2% in 2020, cases of red flags concerning fees, and in particular cases of high and misunderstood fee arrangements, increased from none in 2016 to 45% in 2020.
According to Nicola Young, XPS Member Engagement Hub spokesperson, “The worrying spike in recent months is driven by a significant increase in members that have little to no understanding of fees in the arrangement they want to use to access their pension savings. This may be a result of people urgently wanting to get at their savings due to current economic conditions.”
The evidence collated by XPS has been submitted to the Work and Pensions Committee’s investigation into pension freedoms, the first stage of which seeks to look at pension scams and what more can be done to prevent them. Since the introduction of pension freedoms in 2015, which allow individuals over 55 to transfer their pensions to a different provider, some in the industry have argued that there is more opportunity for scammers to take advantage of savers.
The data suggests that the fear within the pensions industry that scammers would try to use COVID-19 as an opportunity to increase scam activity, which both the FCA and TPR have previously warned of, may have been realised. Indeed, it would appear that the ban introduced in 2019 on pensions cold-calling, whilst contributing to a decrease in the practice, has not had the desired effect of reducing scam activity as a whole.
Trustees and pensions professionals must therefore continue to be vigilant when dealing with transfer requests, in order to ensure that scammers are not able to take advantage of savers during this time of economic instability.