Good morning everyone. I’d like to talk to you this morning about:
- pension fraud and other criminal activity
- what we The Pensions Regulator (TPR) and other agencies are doing about it
- and how I hope you can help us protect victims from its devastating consequences
Pension fraud and other criminal activity
No one thinks they will become a victim of fraud, until they are one. Often those who have lost all their investments to criminals cannot come to terms with the reality that their financial futures have been wrecked forever.
The simple truth is that those who are persuaded or tricked into transferring their pension fund to a risky or worthless investment will lose all or at least the majority of their money – the money they are banking on to support them through their retirement. They could even find themselves with a huge tax bill from HM Revenue and Customs (HMRC).
The loss of that pension income means some cannot afford to retire. Some are forced to sell their homes just to pay the tax charge. All face months, probably years, of unnecessary stress and chaos in their lives because of the moment they fell for the golden promises of the fraudsters.
So how many people have been targeted and how much have the criminals got away with? Again, a simple truth – we don’t know.
In 2014 we estimated that at least half a billion pounds had been taken from people’s pension funds. That figure is likely to be just a fraction of the true amount that has been stolen.
Just last month, Margaret Snowdon, chair of the Pensions Administration Standards Association, speaking at the recent PLSA conference in Manchester said she believed pension savers have lost more than £1 billion to scams.
It is not easy to measure the precise scale of money involved in pension scams, by their very nature. Perpetrators seek to hide their gains from us and any other authorities that could be on their tails.
As Treasury minister Stephen Barclay told the Work and Pensions Select Committee last week, victims may not realise they have been scammed until many months or years later. They can be embarrassed that they were tricked. Sometimes they fear they could be accused of trying to dodge tax and that they could get in trouble themselves if they report it.
What we feel certain about is that many cases are never reported to the police, to us or to any agencies involved in tackling this problem.
In the past, our focus has been on encouraging employers, pension scheme trustees and administrators to do the right thing for their members by making sure they had the tools and the training that they needed to alert savers to the dangers. We called it educate and enable.
It was very much a hand-holding approach to regulation. There was plenty of carrot but not much stick.
But in recent years the pensions landscape has been transformed, thanks in part to the success of automatic enrolment. More than eight million extra people have gained a workplace pension since 2012 because of automatic enrolment, which has led to a rapid shift from defined benefit to defined contribution pensions. Pensions have also reacted to some dramatic changes in the political and economic landscape.
So it is absolutely right that we take a good look at ourselves and the way we work, taking into account the changes that have already happened and further challenges on the horizon.
What TPR is doing about fraud
We are being clearer in what we expect people to do. We’re acting more quickly when we see a problem and we’re being tougher on those who put people’s pensions at risk.
Increasingly we are making greater use of some of our powers that we have used rarely, and are using powers for the first time.
At one end of the spectrum that means fines for employers who don’t give their staff the workplace pensions they are entitled to, fines for those trustees not getting the basics right and bans for unfit trustees.
But it is at the other end of the spectrum, where the real criminals lie, where we are changing our approach in equal measure.
TPR has been leading the fight against pension scams since 2011. We have taken regulatory action to tackle suspected scam activity, including banning trustees and appointing independent trustees to run schemes that we are concerned about.
When it came to prosecutions, we took more of a back seat – passing any cases to police forces, the SFO or the NCA to investigate. But not anymore.
We’ve recognised that we’ll have the most success in tackling offenders if we work even more closely with our law enforcement partners on cases, pooling our resources and expertise to get to the heart of the issue.
Our staff are pension law experts. Our friends in law enforcement are experts at developing and running investigations. Working together will be the key to success in the coming months and years.
We have begun by embedding one member of staff in City of London Police. We have attached others on a short-term basis to an investigation by the SFO into an investment in storage pods of more than £120 million, much of it pension funds. Our staff are sharing their skills and experience and are in turn picking up new skills that will be invaluable for their work at TPR.
We’re working closely with the FCA’s intelligence and enforcement divisions and City of London Police’s economic crime unit.
And in the last six months alone we have launched 20 criminal investigations, many of them joint investigations with law enforcement. They range from criminal breaches of pension legislation to false accounting, fraud and money laundering.
We’ve boosted our investigative capability by setting up a designated criminal investigation team to handle those cases. Our new focus, and close working between our legal and case teams, has led to us securing our first five criminal convictions this year. Those convictions were for relatively low-level offences, but cases involving more serious and complex crimes are ongoing.
As well as helping us educate the pensions industry and the public about what we’re doing and what they should be doing, these cases have helped us hone our processes. We may only have five convictions to date but all five have come since April this year – and more will follow in due course.
Vital for future investigations will be using our full suite of powers, including those we have not used previously.
We are now able to use Proceeds of Crime Act powers to tackle money laundering linked to fraud and other criminality within the pensions industry.
Currently we’re considering the use of production orders for the first time, which would allow us to seize evidence of money laundering.
In the future we also hope to persuade the Crown Court to make orders that would allow us to confiscate the assets of suspected criminals, with the intention that those assets will be turned into compensation for their victims.
We have been working with the DWP to enhance our powers where we believe they can help us to protect people’s pensions, including in the area of information gathering.
It should be clear that our work now and in the future will involve far closer working with other agencies than it has generally in the past.
In some cases this will involve building on the work we already do with government teams, law enforcement bodies and other regulators in Project Bloom to tackle pension scams and those behind them.TPR leads Project Bloom, working with the DWP, the SFO, the FCA, the NCA, TPAS, Action Fraud, Citizens Advice and City of London Police.
Since the group was set up in 2012 we have worked hard to educate the public about the danger of scams and what to look out for. Under the banner of our Scorpion campaign, we’ve produced information packs on the danger signs and detailed pages of online guidance for pension scheme members, administrators and trustees to keep them up to date.
We share among the group any intelligence on new scams or trends so that we can identify trends and new types of fraud early. Fraudsters don’t stand still in their attempts to separate their prey from their pensions, so we also need to be on the move all the time to spot their scams and shut them down before they claim further victims.
During the summer a team from TPR spent three months touring the country meeting financial advisers and spreading the warning message about scams.
The NCA and TPR have also secured the suspension of a number of websites via domain name registrars, so that those on the path to being conned are instead redirected to Action Fraud’s website.
Yet rather than the problem going away, it has mutated into other forms of deception.
Previously a common scam – often called pension liberation – was to entice people to access their pension pot early by offering what was claimed to be a ‘tax free’ loan or lump sum before the victim was 55. These loans were anything but tax free.
Those who took them up have found themselves being challenged by HMRC, accused of tax evasion and handed fines as well as demands for the amount of tax that should have been paid.
Most pension scams now resemble straightforward investment scams, where a member’s retirement savings is moved into unregulated investments with the promise of high returns that never materialise.
Hotel developments in tropical paradises where a brick hasn’t yet been laid are a typical offer. Plantations in Africa or South America are another.
Rogue pension websites have also begun carrying anti-scam messages to try to trick consumers into believing that they are legitimate. We have updated our messages to highlight even more clearly that just because websites talk about scams, this does not mean they are not scam vehicles themselves.
Where we find such websites, we will demand those behind them immediately cease using material that TPR owns and will investigate with other agencies whether further action should be taken.
As yet we have not seen any increase in traditional liberation-type pension scams activity as a result of the introduction of greater freedom for people to access their pensions at 55.
However, there could be a hidden trail of victims who have handed over their funds but either do not yet know that their investments are worthless or are reluctant to come forward for the reasons I mentioned earlier.
Project Bloom partners urged the government to ban pensions cold-calling, which fraudsters were using to trick, persuade and pressure consumers into transferring their funds into risky or even non-existent investments.
The government has agreed to this, meaning a line in the sand will be drawn for scammers. Those who cross it should expect to find themselves in the dock and, hopefully, facing tough sanctions that will send a deterrent message to other would-be crooks.
The ban – along with new rules to prevent the opening of fraudulent pension schemes and restrictions to prevent transfers into scam schemes – will strike a significant blow against pension scammers.
But rather than wait for the new legislation to come into force, we must embed the concept that pensions cold-calling is criminal into the national psyche now, to prevent more people losing their savings. Last week the partners in Bloom agreed our strategy for tackling pension fraud over the next year.
The centre point will be bringing even greater clarity for consumers and advisers about how to avoid scams, more support for those who have been targeted, better use of data to investigate scams and close working with industry and law enforcement to dismantle crime gangs and improve legislation.
It was highlighted by the National Audit Office in June that there were so many different voices shouting about the dangers of fraud that the messages were being lost in the noise.
Help us protect victims from fraud
Our solution is to have one campaign between the partners that will be clear what pension holders should do to avoid becoming a victim.
There will also be more of a call for victims who may be ashamed at having been tricked to come out of the shadows and talk to us, so we can prevent others being conned and can hunt down those responsible.
We have also recognised that there is more as a group that we can do to support those who have handed over their pension funds to fraudsters. Some of these victims have lost the entirety of the savings they have put aside over 40 or more years of work.
They need not just guidance on how they can report the crime but also help in coming to terms with the fact that the comfortable retirement they had been expecting could be anything but.
We will make sure that support is in place, and will pursue those responsible.
Again, the range of skills available among those involved in Project Bloom will be vital. We will continue to share intelligence to uncover the investment vehicles being used to target people and will use all of our powers to shut them down and bring those criminals to justice.
We’ll use what are sometimes described as 'Al Capone tactics' to disrupt the criminal gangs behind these frauds. We’ll shut down their websites. We’ll close their companies. We’ll seize their assets – everything we can do to separate these offenders from their money and the means to steal more.
But we won’t be able to do it alone. We will need your help, as well as the help of other agencies, the press and the public.
We need your time and skills to investigate offences with us – and your eyes and ears in the community to identify those who have been targeted.
As individuals we can all play our part by helping to protect the more vulnerable from predators.
But it is only through all of us working together that we can strangle criminal attempts to prey on people’s pensions.
Interim Executive Director of Regulatory Policy