Access to advice is the last remaining line of defence against pension scammers, finds Sara Benwell

The more choice you have the more chances you have to make a mistake. At the minor end of the spectrum this can mean picking the wrong meal and ending up with food envy, at the major end it can mean investing your entire pension into a scam.

And falling for scams is getting easier. We know that huge numbers of people don’t understand finances in general and pensions in particular. We also know that the introduction of ‘freedom and choice’ has made it easier for people to do whatever they want with their pension funds.


New research from Experian shared exclusively with Pensions Insight found that 42% of people choosing to take a cash lump sum, would do so to invest it in a more profitable project. This was by far the most popular answer and chosen by almost double the number of people that would use it to pay off a long term debt or mortgage.

This is terrifying, particularly when only 23% of those asked said they would consult an independent financial adviser, and more than half would do all the research themselves to decide where to put the money.

What is to stop all of these people choosing to ‘invest’ that money with a believable scammer?

And the fraudsters are getting more convincing. If you don’t understand (or worse trust) the investment industry what makes investing in plots of land near the Brazilian World Cup any less plausible than investing in emerging market debt?

Scammers are giving members the impression they’re the champion of the little man against the pensions companies”

Tom Barton, a partner at law firm Pinsent Masons, said: “One of the surprising things about pensions liberation is how easy it has been for the scammers to cosy up with members. Initially scamming was an aggressive thing – now it’s more gentle. Scammers are actually giving members the impression that they’re the champion of the little man against the pensions companies.

“If the person transferring their money doesn’t realise how safe their money is where it is or how good the returns are – how can we blame them?”

Could schemes be in the firing line?

For schemes and providers, the picture is bleak. There is not only the natural concern about retirees losing all their money. There is the additional fear that members could try to blame them when things go wrong.

Experian’s research found that opinion was divided as to who should be held responsible when a member is a victim of fraud. Alarmingly, a fifth (20%) believe pension providers should be held responsible, one in six (17%) believe the Government should step in and the same number (17%) believe the pensions regulator should be held accountable.

What can schemes do?

The industry should be deeply concerned that 54% of people asked felt that it would be responsible in some capacity if they were scammed.

Rob Lawrence, a partner at Pinsent Masons said: “What’s driving behaviour is the trustees and providers worrying about members and also worrying about getting sued. They’re damned if they do and damned if they don’t.”

Nick Mothershaw at Experian added: “Cybercrime is becoming more sophisticated and everyone needs to play a role in fighting fraud. Fraudsters are accessing to people’s personal information through cyber-attacks and illegally trading personal profiles online.

Cybercrime is becoming more sophisticated and everyone needs to play a role in fighting fraud”

“Organisations can take steps to ensure that the people trying to access their pensions are the genuine recipients, such as checks to confirm a bank account belongs to a genuine policyholder or that an ID document is genuine.”

But if a member decides they want to transfer out, there is very little that schemes can do to stop them – even if the trustees or managers think they are transferring into a scam. The recent Royal London vs Donna Hughes high court appeal has severely limited the powers of a trustee or scheme manager to block transfer requests.

Barton said: “With some scams the sad thing is that the member is hell-bent on transferring the money, it’s way past anything that regulation can prevent.”

In these cases all schemes can do is try to convince members to take financial advice.

If people took proper advice, they wouldn’t make these decisions”

Mothershaw said: “In cases where fraudsters are offering to invest the cash into scams that can seem very convincing. Those who choose to invest should consider advice from an independent financial advisor, so that only reputable schemes or financial providers end up with their money.”

Lawrence added: “It comes down to proper advice. If people took proper advice, they wouldn’t make these decisions.”

The pensions industry also needs to work on its image. If people understood that money sat in pensions was already yielding decent results, whilst also being tax efficient and, crucially, safe – they might be less quick to move it elsewhere.

Lawrence concluded: “Demystifying pensions generally would be helpful. Dashboards, robo-advice, all help demystify things in such a way that dealing with pensions begins to feel like how you deal with the rest of your money.”

In other words – if you know you’ve got steak at home, you’re not going to take a risk on Japanese blowfish elsewhere.