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How to protect employees from pension scams

As soon as it became easier for people to access large chunks of money in one go they became a target of scammers

Since the government introduced pension freedoms in April 2015 people who have saved for retirement can access their money more easily. But this makes them increasingly attractive to scammers.

One in 10 people aged 55-plus fear they have been targeted by scammers since the introduction of pension freedoms, according to research from Prudential in May. The Pensions Administration Standards Association estimated last year that pension savers have lost more than £1 billion to scams.

While people must take individual responsibility for their pensions, HR also has an important role to play. Good businesses have a duty of care to their employees, and that includes ensuring people prepare well for their retirement.

Avoiding common pension scams

Most employees who have been in final-salary schemes will be required to seek professional advice before transferring their benefits, unless their pension is valued at under £30,000.

However, employees who are in defined contribution (DC) schemes are more vulnerable to approaches, so warning them about potential scams is beneficial.

Typically scammers try to persuade people to hand over their savings with the promise of something that sounds too good to be true. Phrases such as 'guaranteed returns' should ring alarm bells. These 'dead cert' investments are often overseas. Even if the scammers follow through on their promise and invest the money in these exotic-sounding schemes rather than just running off with it, UK consumer protection law has no jurisdiction over them.

Any employee persuaded to release a pension pot to one of these high-risk schemes will end up without any protection if things turn sour. This ‘too-good-to-be-true’ approach is often accompanied by pressure-selling techniques, perhaps including warnings that it’s a time-limited offer.

Pensions are for the long term and decisions should not be made under pressure. Any reputable player will know this. So if someone is presented with 'time-limited documents' or told it’s a once-in-a-lifetime offer, it should send a signal to steer clear.

Cold calls are almost always an indicator of a scam. If one of your employees receives a call, email or text message promising a great deal, they should hang up or delete it.

Crooks behind pension scheme scams are no less cunning than any other fraudsters – they will often try to mask their deceit under the cloak of respectability. Sometimes they tell outright lies, claiming to be authorised by the Financial Conduct Authority (FCA) or Pension Wise for example. If this sort of claim is made it’s usually easy to check with a call to the relevant body.

More advanced fraudsters will attempt to give an air of respectability to their appearance and marketing literature – tricks designed to ensnare unwitting people. Another red flag is if the only method of contact provided is a PO Box or mobile phone number.

What can employees do to protect themselves?

Check the FCA’s website for a list of registered financial advisers. It also has a list of unauthorised firms and individuals, as well as a warning list about certain investments. Using FCA-registered advisers should give people protection against misselling.

But employers can go one step further by encouraging staff to do the research themselves. Let them know you can help with any queries and encourage them to raise concerns with you. If you can’t or don’t want to answer their questions directly, consider offering a pensions advisory hotline through a reputable company. They will answer queries on an organisation's behalf, giving employees easy access to reliable information.

Most importantly employers can offer workers access to a pensions adviser at key points in their career, particularly in the years before retirement. When the employee has a trusted relationship they can make informed decisions, and when they are confident about their existing pension arrangements they will be a lot less likely to resort to offers made by scammers.

Steve Butler is chief executive at Punter Southall Aspire