How to protect your employees from pension scams

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Scams are schemes to trick you out of your money. They can arrive by post, phone call, text message, or email, or a fraudster may turn up on the doorstep.

They may tell you about a phenomenal investment opportunity, with a guaranteed return. Perhaps the person on the end of the phone has offered to review your pension free of charge? Or maybe they can simply give you early access to your pension before age of 55? 

Of course, as an employer, you might not be targeted directly, but could your employees find themselves on the receiving end of a dodgy call? Fraudsters can be articulate and financially knowledgeable, with credible websites, testimonials and material hard to distinguish from the real thing.  Even your most financially astute employees could be lured in. 

Many employees coming up to retirement could have amassed large sums of money in their pension pots, making them prime targets for scammers.

We’re doing everything we can to make employers aware of the problem, however, this is not a battle that can be won alone. Trusted employers are in a key position to alert employees to the danger of fraud, including scam warning signs, tricks and pitfalls. Together, advisers, employers and providers can continue to raise awareness and put pressure on the government to make further changes to legislation.

The scale of the problem

There’s no doubt that scams are on the increase.  Government figures indicate that £43 million has been unlawfully obtained by scammers since April 2014, with those targeted having lost an average of nearly £15,000, as scammers try to encourage savers to part with their money with false promises of unique low-risk, high-return investment opportunities.

Citizens Advice has calculated that 10.9 million consumers have received unsolicited contact about their pension alone in 2016. This includes 2.4 million consumers aged 55-64.

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The scale of the problem is being taken seriously - the government is in the process of planning new measures to protect savers.  The question is, will they be enough?

Taking action

Measures under discussion include a ban on cold calling in relation to pensions, including emails and text messages, a tightening of HM Revenue & Customs (HMRC) rules to stop scammers opening fraudulent pension schemes and tougher actions to help prevent the transfer of money from occupational pension schemes into fraudulent ones.

The government has made some progress by introducing draft legislation to stop scammers opening fraudulent schemes. From 6 April 2018, all new occupational schemes will have to have a sponsoring company that is an active company. This requirement will also apply to existing registered schemes and HMRC will have the power to de-register any schemes with a dormant employer.  

Realistically legislation to ban pension cold-calling isn’t likely to be in place until 2020. This is disappointing as the longer the government prevaricates, the greater the danger savers will be targeted by fraudsters.

Spotting the hallmarks of a scam

Often, you’ll spot potential scams before your employees – you’re far more likely to spot the hallmarks, such as illiquid, unregulated, unusual high-risk investments, sometimes offering high guaranteed returns. 

The indications of a scam may include:

  • a free pension review;
  • the promise of guaranteed returns on their investment;
  • low tax / tax-free rates, including tax-free lump sums;
  • exotic sounding and/or overseas investments, and
  • pressure to sign up quickly to avoid missing out.

Armed with the right knowledge, your employees could identify these themselves, and where relevant, alert you and the authorities.

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How can you help your employees avoid pension scammers?

The foolproof way of avoiding cold callers is to avoid answering the phone, but that’s not very practical, so how can you and your employees avoid falling foul of potential scammers?

  • Emphasise to them how important it is to ignore and report unsolicited calls. Remind them that promises of unrealistic returns are likely to be from fraudsters. On your pension and company websites, have a signpost to the FCA’s scamsmart webpages.  
  • Tell your employees to check if a firm is authorised by the FCA. If they’re not, it’s probably a scam.  Check the FCA’s Financial Services Register to see if a firm or individual is authorised or registered with the FCA.  If there are no contact details on the Register or if the firm claims they’re out of date, call the FCA Consumer Helpline on 0800 111 6768.
  • It’s worth making employees aware that if they use an unauthorised firm, they won’t have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong – and they’re unlikely to get their money back.

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In the first instance, it may not seem like a responsibility that sits with you but, as a trusted employer, you’re in the ideal position to help safeguard your employee’s savings from financial vultures and scam artists. 

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