More than half of final salary pension transfers still at risk of fraud

Latest research shows worrying trend continues.

More than half of retirees were at risk of fraud when moving their pensions out of a defined benefit (DB) final salary scheme last month.

Analysis by pension scheme administrator XPS found transfer values increased during March to around £245,000, recovering around one-third of the sharp fall experienced in February.

This increase was largely due to rising expectations of future inflation increasing the expected value of member’s pensions, XPS said.

Its red flag index warned that while the number of potential transfer requests in the schemes it administers fell from 60% in February to 52% in March, this was still high.

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Helen Cavanagh, consultant at XPS Pensions Group, says: “We are pleased to see the continued fall in the red flag index.

“However, more than half of cases are still showing warning signs that could indicate a scam, or at the very least, the potential for poor member outcomes. This remains much higher than the level of red flags we were seeing before the pandemic.”

She warns that some advisers are still not additional disclosure requirements introduced last year.

Advisers doing pension transfers are now required to complete one-page suitability reports that explains their advice, charges and the risks of moving from a DB scheme.

They must also confirm that a client understands what has been advised.

The Financial Conduct Authority issued its long-awaited final guidance for firms advising on pension transfers in March.

The City watchdog said most consumers are better off staying in their DB pension.

It says: “Where an individual seeks advice to transfer, we expect firms to give advice that is suitable and appropriate for their needs and situation.”

Regulators have also warned that some scams may not be getting reported.

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Nicola Parish, The Pensions Regulator’s executive director of frontline regulation, says: “To fight the scourge of pension scams and keep up with scammers’ ever-changing tactics, we need a clear understanding of the size of the problem and good-quality intelligence.

“While we’ve seen no evidence of a significant increase in pension scams during Covid-19, we believe many across the industry, including trustees, pension providers and administrators, are not reporting suspected scams at a time when the pandemic could leave savers more vulnerable.”

She says scams should be reported to Action Fraud or by calling 101 in Scotland.