“They’re like grey people […] when they’re speaking to us, you can picture them with all the blood drained out of their face because they’re clutching at straws, that maybe we can give them some help which probably doesn’t exist. For us it’s quite depressing. For them it must be absolutely unacceptable. For example, your wife’s left you; your kids won’t talk to you; you’re living in a hostel or something like that. It is devastating. Scams are absolutely devastating in their worst extreme” – Pension professional
The impact of pension scams can be devastating for those affected. Beyond the financial loss – on average individuals lose £82,000 of their savings – the emotional and psychological repercussions can be profound.
In partnership with the Money & Pensions Service (MaPS), we recently published a comprehensive evidence review into pension scams in the UK, drawing insights from the literature and from interviewing sector professionals, and pension savers affected by scams.
“[My advice is] don’t trust financial advisors because that’s where I went wrong. I trusted them because I thought that’s what he was paid to do. Don’t put your trust in any of it” – Person affected by a scam
Impact of scams on pension industry
“[Starting a new pension] is at the bottom of my list of things to do. [because of his experience and worry of being scammed again]” – Person affected by a scam
It’s not just the pension savers that lose out – the legitimate and reputable pension providers do, too. Pension providers suffer:
Loss of business. Scammers persuade savers to transfer their pensions to fraudulent schemes or withdraw money from their legitimate schemes and invest it in high-risk or fraudulent investments.
”I’ve got this glossy magazine …: Thank you for taking part in investing in Harbour Pensions” – Person affected by a scam
Loss of reputation. Scams erode trust in savings and the whole financial system. Scammers may exploit ‘source credibility’ by impersonating trusted organisations, e.g. adopting overt markers of authority, such as company logos and prestigious offices. Some even set up clone firms that mimic legitimate organisations – such as a clone firm imitating Aviva in 2020.
Four ideas for pension providers
Pension providers therefore have an interest to do more to protect pension savers from scams. And they have the obligation to do so: a “firm must avoid causing foreseeable harm to retail customers”. The new Consumer Duty guidance is even more specific – firms must protect “consumers [from] becoming victims to scams relating to their financial products”.
Here, we present four ideas, based in evidence from the Behavioural Sciences, for what pension providers can do:
1) Enable substitution behaviour. Scammers often target people who are looking to make changes to their pensions and dismiss actions that the current provider might take – such as raising an ‘amber flag’ and referring the saver to MaPS as an indication of a ‘nanny state’. Pension providers can empower pension savers to find alternative ways to achieve their financial goals without transferring.
2) Make the risks more salient. Widespread misconceptions about pensions exist, with many unaware that their savings may lack government protection. For transfer requests that meet the requirements of an amber flag providers should (1) communicate the risks clearly, including examples and relevant data, such as the average financial loss suffered by those who are scammed; (2) have the pension saver sign a document describing the risks and confirming their understanding.
3) Check in after an amber-flagged transfer. People who have been scammed once are often targeted again. Pension providers can proactively re-contact pension savers who went ahead with an amber-flagged pension transfer and inform them of the risks of future scams.
4) Collaborate with other pension providers to help address underreporting and fragmented data collection. In the UK, scams are grossly underreported with data collection inconsistent. Pension providers can (1) adopt shared definitions for concepts like “scam”and “problematic transfers”; (2) share scam data with the Pension Scams Industry Group.This would improve the amber flagging system’s effectiveness, helping industry and the public sector respond to emerging trends and threats, stopping more scams before transfers occur.
Read our full report, including recommendations for MaPS and the pensions industry here. If you work for a pension provider and would like to speak to us about how to better protect those who save with you for retirement, get in touch!