UK Calls on Pension Fiduciaries to Help Protect Plan Members from Scams

By Dinah Wisenberg Brin January 20, 2021
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London business district

​United Kingdom regulators are calling on the pension industry to step up the fight against scams that target employee retirement savings—a problem that appears to have intensified during the coronavirus pandemic.

Pension scammers have pilfered more than 30 million pounds (approximately $40.9 million) from U.K. plan members since 2017, The Pensions Regulator (TPR) reported in November 2020, citing data from national scam reporting center Action Fraud. TPR asked pension trustees, administrators and providers to pledge to take steps to combat scams. These include:

  • Regularly warning members about the threat.
  • Learning the warning signs.
  • Exercising due diligence in approving requests to transfer pension funds by carrying out checks and documenting procedures.
  • Encouraging members requesting cash withdrawals to seek free, impartial guidance from The Pensions Advisory Service.
  • Informing authorities and the pension member about scam concerns.

"Pension scams devastate lives," said Nicola Parish, TPR's executive director of frontline regulation, in announcing the pledge campaign. "As the first line of defense for savers, trustees and pension providers have a vital role to play in beating the people behind these despicable crimes."

Mark Steward, executive director of enforcement and market oversight at the U.K.'s Financial Conduct Authority, added that "pension scammers can destroy a lifetime of saving for a comfortable retirement, so preventing scammers [from] succeeding in the first place is the way to go."

Savers became a natural target when the U.K. liberalized pension rules in 2015, allowing employees to take out all their defined contribution plan savings in cash rather than requiring them to buy annuities, said Francois Barker, an attorney with Eversheds Sutherland in London.

The government reports that transfers from defined benefit plans have increased in recent years as well.

Red Flags Rising

The pandemic has resulted in more pension scams, leaving many people more financially challenged, Barker said. 

In addition, "home working makes it easier to get a hold of individuals" and prompt them to part with their pension funds, he said.

Consulting firm XPS Pensions Group reported that in November, a record-high 64 percent of pension transfers raised at least one red flag for a potential scam.

Plan members should be taught how to identify a fraud, said Anne-Marie Winton, an attorney with Arc Pensions Law in London.

Unsolicited phone calls, text messages and letters from firms wanting to discuss a pension should raise red flags, as should pitches to help members cash out their funds before age 55 or promises of high returns, she said. Firms marketing limited-time offers or investments in sham hotels or speculative storage pods also should raise suspicion.

"They'll sound very credible, they'll sound very friendly," and will know about the member, Winton said.

Other red flags include requests to transfer funds to a distant firm or to a business with no connection to the member's job, Barker said. "There are things that don't add up, and that just don't smell right," he stated.

While the U.K. strictly limits pension cold calling, scammers make such calls anyway, Barker remarked.

Winton noted that "It's actually quite tricky to find a piece of law that will stop people from being scammed."  

In general, the earliest U.K. savers can legally cash out their funds is age 55, making them clear targets at that point. Those younger than 55 are vulnerable as well, Barker noted, as scammers may promise early access to funds. "Typically, the scammers take off with all the money and the individual is left with nothing," he said.

Plan fiduciaries can play an important role in spotting scams.

Winton cited a case in which a trustee became suspicious when contacted by a third party about a potential transfer. "It looked like it was just a shell company," she said. The trustee blocked the transfer even though the third-party business threatened to complain and never heard from them again.

Scams Despite Regulations

In an effort to block scammers, regulators have gradually tightened the rules regarding transfers and their expectations for what fiduciaries must do to help avert theft, including warning members when a transfer request looks suspicious, Barker noted. 

A pensions scheme bill expected to soon become law would further control transfers by requiring extra due diligence. In addition, the pensions minister announced he'll introduce legislation to modify or suspend a member's right to transfer funds out if any red flags are present, Barker said.

Fiduciaries already know they are exposed financially and may be told to make the saver whole again if they don't protect the member, he noted. Employers sponsoring pension plans run potential financial and reputational risks should plan members fall victim to scammers.

On the other hand, while employers can point employees to free resources offering financial guidance or suggest they seek out an independent financial advisor, they shouldn't directly offer financial advice themselves, Winton cautioned. 

"Don't start with the premise you're there to give financial advice to staff," she said. "Don't be the person in the chain to accidentally expose your employer to a claim."

Dinah Wisenberg Brin is a freelance reporter and writer based in Philadelphia.

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