MPs urge government to act on embarrassing rise in pension frauds

The Work and Pensions Committee said such scams were “a tragedy for individual households and undermine trust in the law-abiding and responsible majority in the retirement finance sector”.

The committee, chaired by veteran Labour MP and welfare reformer Frank Field, promised to “monitor action on pension scamming closely over the course of the parliament”.

Embarrassingly for the government, pension fraud has doubled this year since the new regime began, according to the City of London Police. Between April and August scams worth £9.1m were reported, against £4.5m a year earlier, with the sums involved increasing.

After an initial spurt the number of cases reported has been falling, with only 74 in July and 50 in August.

But John Lawson, head of financial research at Aviva, has warned of a potential timebomb for unwary savers lured into overseas schemes purporting to invest in hotels and holiday home developments that don’t exist, and that “people might take two or three years to notice they’ve been ripped off”.

Reports coming out of the big pension companies suggest a potential iceberg.

Edinburgh-based Aegon UK has said it estimates eight out of 10 requests for overseas pension transfers it receives are scams, and has blocked them.

Transfers into Qualifying Recognised Overseas Pension Schemes (QROPS)are intended for UK residents emigrating with their pension savings. But Aegon says the schemes are the device increasingly used by unregulated companies for earning a huge fee, or worse, grabbing the entire proceeds.

Last week Phoenix, which runs closed life funds such as Scottish Mutual and Scottish Provident, said it had identified 1,650 suspicious companies or schemes which it believes are involved in scams. It has so far intervened to stop 1,200 customers from transferring pensions worth £25m - which might otherwise have disappeared.

In August Citizens Advice, which is delivering the government’s Pension Wise guidance service on the ground, said typically 40 per cent of its staff had spoken to people repeatedly targeted by scammers.

There are some ambitious frauds around. This month the Pensions Regulator warned savers to remain vigilant against the ongoing threat as it published details of an investigation into a suspected multi-million pound scam.

A ‘shadow trustee’ David Austin was deemed by the regulator to have masterminded the misappropriation of funds worth £13.7m belonging to 242 scheme members. The cash had “all but disappeared – including through the payment of exorbitant fees and commission payments”, it said.

It has now appointed an independent trustee to administer 17 pension schemes to claim back funds and prevent further loss.

The regulator says the case features many of the warning signs that people should watch out for to protect themselves from pension scams, including:

*Mass marketing techniques such as cold-calling.

*Funds transferred to trustee personal bank accounts and third party companies

*The incentive of lump sum payments on completion of the transfer.

*Inadequate scheme documentation at point of transfer

*Inability to make contact with the new scheme administrator

Andrew Warwick-Thompson at the Pensions Regulator said: “Our appointment of an independent trustee has helped secure approximately £400,000 from the schemes, however for many hundreds members, hard-earned savings have most likely been lost.

“Our message is clear: if you’re cold-called or texted by people claiming they can help you to get early access to the cash in your pension or unusually high investment returns, stop, don’t be tempted, and put the phone down. You’re likely to lose all your money and may face a considerable tax charge.”

The deVere Group, a wealth manager for expatriates, says fraudsters claiming to be from fully authorised firms are bombarding individuals across Britain with calls offering bogus financial products.

UK managing director Mike Coady, said this week: “As has happened several times over the last three years, the clone fraudsters typically adopt a near identical company name and branding to that of deVere UK....some are now even using fake FCA (Financial Conduct Authority) numbers that are similar to our bona fide one.”

The sales pitch includes cash ISAs “paying four or five per cent and corporate bonds paying six to seven per cent, protected by the Financial Services Compensation Scheme”.

One client who was approached said he was offered “a one year bond for me at 6.25 per cent and a one year ISA for my wife at 4.75 per cent, both of which involve the transfer of funds to a bank in Denmark”.

Mr Coady said: “If you suspect that you have been contacted by a bogus firm, you need to report your suspicions to the FCA and to Action Fraud.”

Chris Noon, partner at Hymans Robertson, the leading UK pensions and benefits consultancy based in Glasgow, said government support for employers was the key to enabling people to get pre-retirement advice in the workplace.

He said: “It comes as no surprise to us that pension freedom is not working as it should. We agree that urgent improvements are needed to avoid another financial mis-selling scandal. The government needs to tackle this urgently, and should do so before introducing any further shake-ups of the pension system.”