3 ways we’re protecting clients against the rising numbers of pension scams

Over the last year, the pandemic has provided a fertile hunting ground for scammers. After six years in which reports of pension fraud fell, there has been a sharp rise in cases recently. Indeed, Action Fraud has reported that savers lost £1.8 million to pension fraud in the first three months of 2021 alone.

According to its figures, the organisation received 107 reports of pension scams in Q1 this year, an increase of almost 45% on the same period in 2020.

To combat this, Action Fraud has now launched a national awareness campaign, encouraging individuals to undertake due diligence before they make any changes to their pension arrangements.

As you would expect, IPM takes the security of our clients’ money and assets extremely seriously. We have robust processes and procedures in place to ensure that this is always maintained, including having a system whereby all monies out of a SIPP need to be independently approved by several staff members with varying levels of responsibility.

The key area where a SIPP is vulnerable to a scam is when money leaves the SIPP. This is where we need to be at our most vigilant.

Read on to discover the measures we have in place to protect clients when we pay money from a SIPP, and some examples of where things could have potentially gone wrong.

1. Transfers out and pension liberation

Sadly, there are people out there who continue to attempt to convince clients that they can get their money from a pension scheme prior to the age of 55. While this can be done under very limited circumstances, in most cases this is not possible without incurring tax charges.

These people will often look to transfer benefits from an arrangement like IPM to an unregulated scheme to make a “risk-free” investment which will “guarantee high returns”.

Remember the adage: “if it sounds too good to be true, it probably is”.

Therefore, whenever IPM are asked to transfer benefits from our scheme, we need to be comfortable before making payment.

Most transfers away from IPM go to other well-established registered pension schemes, such as other SIPP or personal pension providers. However, there are times that we are asked to pay a transfer value to a less recognised arrangement, such as a SSAS.

Most of the time a transfer to a SSAS will not be an issue. However, given the fact that they are unregulated, we undertake additional checks before signing off on a transfer.

We have an extensive questionnaire we ask the client to complete which requires the involvement of the firm providing the SSAS. Among other items, we also ask for certified copies of the SSAS trust deed and rules, an HMRC approval letter, and up-to-date status of the scheme from HMRC.

In most instances the information we request is provided and the transfer can procced. However there have been occasions where the level of information IPM has asked for resulted in a transfer not proceeding, or the SSAS provider being changed.

2. Investments

Probably the most common area people think of when they consider pensions and scams is a client making an investment which turns out to be a scam.

We have spoken previously of the removal of the permitted investment list for SIPPs by HMRC in 2006. In theory, this now allows clients to make any investment within a SIPP. However, for certain types of investments there are tax charges – residential property being an example.

Unfortunately, there have been many examples over the years of scam investments in SIPPs.

In some cases, clients had knowledge of the scam; one particular investment saw clients sell units they personally own to their SIPP at an inflated price. HMRC picked this up promptly and issued the clients with a tax charge. In this scenario, the value of the investment dropped significantly so the client lost out both ways.

Other investments have resulted in clients being the victims of fraud. A certain property investment scheme investigated by the Serious Fraud Office saw more than £400 million invested, a significant proportion of which was withdrawn by those running and promoting the fund. SIPP money made up a significant amount of the money lost.

IPM has always had robust procedures in place when it comes to making investments, especially the more esoteric ones. Both above investments were put to IPM, and we rejected them.

In 2016 the FCA introduced the term “non-standard investments” for SIPPs. The general rule is that, if an investment is unregulated and cannot be realised within 30 days, it would be deemed non-standard.

While SIPPs can still make non-standard investments, the information the SIPP provider needs to hold when making the investment, and then ensuring that the understanding of the investment remains correct, is significant.

As a bespoke provider, IPM continues to consider non-standard investments on a case-by-case basis. A quarterly dealing hedge fund for a professional client, for example, is something we would look at.

It’s not just the investment we are being asked to make that forms part of our investment assessment process.

We look at the client, their pension assets, and their personal circumstances. We are not afraid to say no to an investment where we are not provided with all the information we require or if something does not add up.

3. Paying benefits

Whether a client is taking a pension commencement lump sum (PCLS) or an income payment, the payment of benefits is a potential opportunity for fraudsters to extract money from a SIPP.

This is especially true on the first occasion where IPM makes a payment. This process starts with our benefit payment or income request form where a client specifies what they would like to receive and where we should pay the benefits.

Our usual benefit payment process would then commence, which would involve at least three staff members with varying levels of responsibility calculating, checking, and approving the payment.

Given this is the first occasion we would be paying money, we then ask for a copy of the bank statement into which the benefits are to be paid, so we can cross check this with the details that have been provided.

Where a sum out of the ordinary is requested, or we spot an unusual pattern, we will often call a client to check that the request is legitimate. We will also ask for a copy of a bank statement if the account we are being asked to pay money into has changed.

Unfortunately, there have been occasions where a request to have money paid from a SIPP has been made by someone else other than our client.

On one occasion we received a request from a client via email to pay a large income payment from the SIPP to an account we did not have on file. The request was made to a team member who the client regularly dealt with.

Given the unusual amount requested, and that the wording used in the email not matching that which was typical to the client, we flagged this and contacted them. It turned out that the client’s email address had been hacked and then used to make the request to IPM!

We also ask nominated beneficiaries of death benefit payments for evidence of the account to which payments should be made. These are typically for larger sums of money.

Get in touch

The above is a general overview on some of the areas where we feel our SIPPs are at greatest risk to scams and the processes which IPM puts in place to mitigate these risks.

More comprehensive details in relation to our systems, control, and culture can be found in our due diligence pack. Click here to request a copy.

If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us. Email info@ipm-pensions.co.uk or call 01438 747 151.