The Financial Conduct Authority (FCA) has regularly committed to crackdown on scams, but more has to be done as research reveals that fraud is costing the pensions sector billions, annually.
This comes seven months after the UK regulator found that five million Brits are at risk of succumbing to a pension scam.
The cost of fraud to the UK pensions sector is estimated to be around £6bn ($7.8bn, €6.9bn) per year, according to research undertaken by national audit, tax, advisory and risk firm Crowe, in conjunction with the University of Portsmouth Centre for Counter Fraud Studies.
Private pensions are the most vulnerable, with Crowe’s research putting the loss from investment fraud and payment fraud at £2.88bn and £1.68bn a year, respectively.
An additional £330m is lost to payroll and purchasing fraud, while UK government and public sector pensions are estimated to be losing £1.1bn a year.
Call for action
Jim Gee, partner and head of counter fraud at Crowe, said: “Fraud has a serious and detrimental impact on the quality of life across every sector and region of the country.
“In respect of pensions, fraud undermines the value of income for people at a crucial time of life when sources of income are more limited and the chances of financial recovery are reduced.
“It is time for the industry to review whether it is doing enough.
“A pension, in many ways, represents a life’s work. The industry must better protect the fruits of peoples’ labour, rather than funding early retirement for undeserving fraudsters.”
Pension sector at risk
The report said that the pensions sector remains at critical risk to fraud, “given the scale, sum and diversity of investments pension schemes are responsible for, combined with counter fraud and cybercrime processes, which are not yet fully adapted to very rapidly evolving threats”.
Retirees and prospective pension beneficiaries “are also seen by fraudsters as easy targets, particularly if documents can be easily purchased, corrupted or faked”.
Scams that targets future pensioners can range from:
- Fraudulent activity related to pensions liberation reforms;
- Fraud and error arising from bad or negligent administrative actors;
- Inappropriate investments; and,
- Targeting of schemes by external fraudsters.
Crowe said that some of the “chief risks to the pensions sector are internal fraud, identity fraud and cybercrime”.