Pension Fraud is a hot topic at the moment. Savings are under threat from an increasing number of pension scams.
Police data last year revealed that pension scam losses had more than trebled in the month after pension freedom was introduced in April. Losses from pension fraud surged 235% to £4.5m in May 2015, up from £1.4m in April of the same year as savers were able to access their pension cash.
Pre-pension freedom this fraud was called ‘pension liberation’ as fraudsters would offer people access to their entire pension fund, often pre-age 55, but the saver would either see little of the money or be hit with a large tax bill – the unluckiest experienced both.
However, since ‘pension liberation’ has effectively been legalised for those aged 55 and over and there is no need to buy an annuity, scammers have changed tack. Instead of encouraging savers to get hold of their cash early and avoid buying an annuity they are encouraging them to take their money out using the freedoms and invest it in questionable investments with the promise of larger returns.
A recent study by Citizens Advice turned up some truly scary results. In a survey of 2,000 people, three out of four said they were confident they could spot a pension scam. The same 2,000 people were then shown three mock-up adverts for financial advice – two of which were scams – and asked to say which advert they would trust in a real-life situation. Nine out of ten people chose a scam. Even among those who had said they were confident they could spot a fraud, 87% still fell for a scam advert.
But this isn’t the only type of pension fraud that is growing – so is deceased pension fraud. Deceased pension fraud is when a family member or friend continues to collect the pension of someone that has passed away. This is a real concern for local government as many of them they will be making erroneous payments costing millions each year.
For example a recent report by The National Fraud Initiative revealed that matching Blue Badge and pension data against records of deceased individuals in Scotland alone could save £2.4m and £4.6m respectively.
Additionally, the most recent Pensions Fraud Risk survey reported that 51% of local councils had not tested their internal fraud monitors for more than a year. This avoidance is in breach of regulatory guidance which calls for ‘at least’ annual checks. Improvements to the way council bodies record their investigations has been encouraged.
Furthermore, it is expected that deceased pension fraud will get worse as a result of Brexit since all types of fraud increase during periods of economic strain and uncertainty. Moreover, with the mortality rate increasingly significantly this is an issue which if left unattended could spiral out of control.
Deceased pension fraud is clearly a growing concern and no wonder as it is costing local government millions. However, simple solutions such as screening against deceased fraud products can quickly and easily identify the fraudulent payments and cut them off at the source.
Karen Pritchard is director of Halo, Wilmington Millennium