Half of post-lockdown pension transfers trigger scam ‘red flags’

Jenna Brown reports

More than half of pension transfers covered by the XPS scam protection service have been flagged as at risk of fraud since the start of the pandemic, the provider has said.

The figure is part of the firm’s submission to the Work and Pensions Committee call for evidence on the impact of pensions freedoms five years after they were introduced, which includes gathering data on the growing problem of pension scams before and after the pandemic struck.

XPS Pensions Group said there had been a steep rise in “red flag cases” from one in eight between 2015 and 2018 to about half of all cases in July and August 2020 – which covers people accessing their pension pot after the onset of Covid-19.

It explained factors triggering a red flag have changed.

Those targeted with cold calls fell from 22% to 2% between 2016 and 2020. However, cases of high and misunderstood fee arrangements saw the largest increase, rising to 45% over the same period.

XPS said unnecessary fees can have a substantial impact on pension income and “can lead to a member running out of their pension eight years earlier than they would have done under a low-cost option”.

XPS member engagement hub spokeswoman Nicola Young said: “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.”

She added: “Over the last year we have seen more schemes provide access to independent and robust financial advice covering an additional 18,000 members. We welcome this, but more could be done if there were clear guidelines and regulatory protections for employers and trustees who seek to put in place education and access to such advice.

“We are, however, starting to see concerned trustees and employers explore and implement a signposted, safe, low cost receiving vehicle for members that do want to transfer their pension savings. This can provide comfort to schemes and members that they are not moving to a scam or overly costly arrangement.”

XPS has provided protection services for members leaving pension schemes since 2015, allowing it to track, analyse and respond to developments in scam activity.

The service identifies whether any of more than 40 possible red flags are present for members leaving their schemes. To date, the scam protection team has been involved in 4,500 transfers representing £1bn in assets.

Elsewhere, The Investing and Savings Alliance (TISA) called for increased government and industry collaboration to tackle the problem of scams.

Head of retirement Renny Biggins said: “Pension scams have been around for years in one guise or another, but evidence shows that this is a growing risk, which can damage consumer confidence in the wider pension system.

“Since the introduction of pension freedoms, schemes and administrators have experienced an increase in suspicious transfer requests. The Pension Scams Industry Group (PSIG) research findings estimate total losses to pension schemes at around £10bn.”

Biggins added the lockdown had hit household finances and increased vulnerable customer numbers.

“To help reduce criminal activity, it is important to reduce individuals’ exposure to scams, continue promoting awareness of scams through various channels as well as tighten the relevant legislation,” he commented.

“We must, however, acknowledge there is no silver bullet and as the government and industry’s anti-fraud measures evolve, new scams will also evolve. Increased government and industry collaboration is required, to ensure that existing and new scam activity can be identified at the earliest possibility and expertise and real-time operational experiences can be leveraged, to drive forward further innovation and change to combat this activity, increase consumer confidence and keep losses to a minimum.”