Pension Scams & the COVID19 Pandemic
“Pension savings are often people’s single largest financial asset. The high value and fact that people often do not have to engage with their savings until much later in life makes them an attractive target for fraudsters.”
The above paragraph is taken directly from the Work and Pensions Committee announcement published earlier this week. And the Committee most certainly has a point.
The potential for pension fraud
For the announcement of new pension “freedoms” made by the then Chancellor of the Exchequer (George Osborne) in 2014 signalled significant new flexibilities with regard to the use of retirement funds for those aged 55 and over. This new latitude has been widely welcomed, and indeed rather well used, by many savers in the years since that initial announcement. Sadly the same change in rules also presented some criminal gangs with a new opportunity to defraud savers of part or all of their hard-earned retirement savings.
Such an approach is made somewhat easier by the still considerable confusion in the minds of the general public about what flexibility the new rules actually provide in practice. That is exactly the sort of grey area that fraudsters like to exploit, and a variety of – sometimes quite sophisticated – scams have been unearthed in recent years. In 2018 there were 180 reported scams, with an average loss to each individual saver of some £82,000, and it’s worth noting that authorities believe that many more scams remain unreported.
COVID19 adds to the problems
All this is concerning enough of course, but as the Chairman of the Work and Pensions Committee, Stephen Timms MP, said this week; “Extra financial hardship brought about by the coronavirus pandemic also provides an added opportunity for tricksters to prey on those people who may be looking to use their pension savings as a form of support.”
This suggests that the incidents of pension fraud might well increase when the next set of official findings are published. And it should be remembered that each such occurrence represents a potentially massive financial blow to the victim and their family.
Of course for some victims such a fraud might mean the difference between a relatively comfortable retirement, and one reliant and constrained by the limitations on the United Kingdom’s state pension offering alone.
It’s also worth mentioning that – for a particularly unfortunate few – the disinvestment of the pension savings as part of the fraud can also trigger a significant tax liability for the saver too. This represents a horrendous “double-whammy” for someone that has already suffered a financial loss at the hands of the fraudsters.
Can Employer’s help?
Whilst it would be unrealistic to expect employers to offer any direct financial help to those defrauded of their retirement savings, employers can and do have a potentially big role to play in preventing the scams happening in the first place. This is particularly the case given that employees so often look to their employer for initial guidance in such matters.
So, regardless of the type of employer-sponsored pension scheme on offer, employers can do much to raise awareness of such potential criminal activity and help their employees steer away from such an unpleasant outcome.
For instance employers can display this poster in workplaces to raise awareness of the issues, and include reminders of the risks in their regular Employee Benefits updates. There is also some useful generic guidance for employers on communications during the current crisis available via this page on The Pensions Regulator’s website, and free and impartial guidance provided to savers over age 50 via the government funded Pension Wise service too.
Finally, and certainly not least, we would encourage employers to provide employees with more access to group pension surgeries and/or personalised guidance sessions via remote webinars and video calls during the on-going crisis.
For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options. For the latest details on COVID-19 & Employee Benefits provision please visit our coronavirus hub.
Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.
More insights from the Employee Benefits and Wellbeing team
This article is one of many insightful opinion pieces.