Pension fraud soars during the depths of a downturn

The financial services sector currently shoulders the £3.5 billion lion’s share of the UK’s annual £75 billion estimated fraud losses.

Mortgages, currents accounts, loans and savings are all vulnerable – but evidence suggests pensions are equally at risk.

While there are no precise figures for Britain’s pensions industry as a whole, annual public sector pension fraud alone is estimated to cost nearly £17 million by the National Fraud Authority.

But analysis of pension scheme fraud by Baker Tilly suggests it’s just the tip of a very sizeable iceberg. Headlines figures in the Baker Tilly Pensions Fraud Risk Survey 2012 highlight both the rising incidence of fraud and the increasing level of concern within the industry.

It emerged that nearly one in five (19%) pension schemes have seen some form of fraudulent activity during the past two years, while at the same time more than one in five (21%) trustee boards have given very little of no consideration to the threat fraud poses during the past 12 months.

The ongoing fraud rise is a trend being seen elsewhere across the financial services sector and is in part a reflection of the challenging economy and continued squeeze on household incomes.

Pension fraud is committed when relatives fail to notify pension providers about the death of a relative or close friend and continue to wilfully cash in pension payments on their behalf. It also occurs when pensioners fail to notify providers they’ve had a change in circumstances which may affect the value of their pension – returning to work after adopting retired status, or moving abroad.

The prevalence of bogus intermediaries is not fully quantified either. Their fraud is generally straightforward. Opportunists call, text or email victims and suggest they move their money from an established pension fund – which may be safe and stable but a poor performer – into a Self-Invested Personal Pension or SIPP.

Fraudsters rely on the promise of enhanced yields by switching from safe UK funds into exotic investments which will perform far better, but after a set period never pay out or cease to exist.

Add to that incidences of employees creating ghost identities to embezzle funds from pension schemes and the scale of fraud starts to shape up.

The rising fraud trend comes as no surprise and typifies patterns often seen during spells of acute financial stress among UK households. Bogus intermediaries aside, the more traditional routes to fraud across financial services come via ID theft, bogus accounts and account takeover.

As the challenging economic circumstances have continued, attempts by some cash-strapped individuals to get their hands on funds have become more diverse and more inventive.

The trend also underpins the need for vigilance by pension providers, the vulnerabilities in ID validation and highlights the need for administrators to safeguard their position by using robust online document checking wherever possible.

On-going financial stress, the challenging employment market, rising costs and increased pressure on disposable income show no immediate signs of easing.
While the motivation may be self-evident and hinge on desperation, there is clearly a need for earlier pro-active intervention by institutions.

For more detailed insight into the who, how and where, simply click on the attached link and download Experian’s latest Fraud Report.