Countering the increased threat of pension scams
Pension scams are not new, but the number of pension scams has soared by 400%* since the beginning of the COVID-19 pandemic. So, what is a trustee’s role in protecting members against pension scams? Aon’s Tom Williams explores this below.
An individual's pension pot is one of their largest financial savings - commonly more than the value of their house - so any fraud is a concern. The current surge in scams has led to many questions from trustees around their role in protecting members against pension scams and where their responsibilities start and end.
"Trustees and administrators play an important role in educating and protecting members" The Pensions Regulator
It has never been so important for trustees to have clarity of their responsibilities and a better understanding of their role, but where do you start? We believe it comes down to a three-step process: engaging, supporting and protecting members.
It is vital to help members by providing them with the information they need to spot the signs of a pension scam – and to avoid it.
The Pensions Regulator, in collaboration with the Financial Conduct Authority and Money & Pension Service has encouraged administrators to issue a letter to any members considering transferring their benefits (one of the most common areas where a pension scam occurs). The letter is to warn members of the potential risks and highlights valuable resources such as the ScamSmart campaign, where members can find out more information about what to look out for.
In the past, the view may have been that it was for administrators alone to protect members from pension scams. However, it is increasingly recognised that trustees and their influence on engaging and supporting members are just as, if not more, important. A recent Aon poll revealed that 41% of respondents had or intended to engage proactively with members during the pandemic and to point them to key resources.
The Pensions Regulator states, "trustees should give greater attention to the heightened risk of members being targeted by scammers and unscrupulous financial advisers".
Providing members with information is an important starting point, but better practice is providing support for members who are considering retiring or transferring out, on their options. This is most commonly in the form of online modellers to help members to a better understanding of their retirement options, or by selecting a reputable firm of financial advisers that members can use should they wish to do so. This support can greatly help to reduce the risk of members falling victim to pension scams.
Earlier this year, Aon surveyed over 300 pension schemes and found that around a third of them are providing additional support to members. We expect this trend to accelerate given trustees’ increased focus on supporting members.
The Pensions Regulator has also provided a clear call to action for trustees to actively monitor the number of requests for transfers out of the scheme and also which advisers are supporting the members’ requests.
Trustees should work with their administrators to ensure that they have robust processes and systems that trigger ‘red flags’ to indicate pension scams. Trustees are expected to know of current pension scam strategies and these processes are among the key steps to protect members. Trustees need to be aware of their role in the entire process and an interactive training session with your administrator present, is a great way to tackle this and a common approach that Aon is currently seeing among its clients.
As with so many things in pensions, there is no single right answer to what trustees should do. However, it is clear from The Pensions Regulator's guidance that now, more than ever it is vital for trustees to make a conscious decision about how they react to the increased risk of pension scams and to take the appropriate action.
At Aon we have been running training sessions to help trustees gain a better understanding of their role, covering all of the aspects above. If you would like further information on how we can provide training for your scheme please get in touch.
*Source: Action Fraud
Tom Williams is a Senior Consultant and Member Options specialist.