Pension scammers could use market volatility to strike, warns regulator

Pension scammers could seize upon the current market volatility as an opportunity to strike, the Pensions Regulator (TPR) has warned.

The body, which regulates work-based pension schemes in the UK, set out actions that pension scheme trustees should consider to shore up their positions before the end of the Bank of England’s emergency bond-buying scheme on Friday, and in the near term.

Setting out its expectations for trustees, the regulator said: “Market volatility often presents opportunities for scams, and trustees should remain vigilant and follow best practice in this area.”

Trustees should also monitor the appropriateness of assumptions used in calculating pension transfer values, it said, as these could be impacted by the recent market events.

Sam Richardson, deputy editor of Which? Money, said: “Pensions have always been a target for fraudsters but the rising cost of living and current turmoil surrounding pension funds has created a new opportunity for criminals to exploit using sophisticated scams.

“With more than half of pension pots being withdrawn fully into cash, some savers are at risk of losing large sums of money to a range of scams, from bogus investments promoted online to fraudulent texts attempting to play on people’s fears about their defined contribution pension savings.

“In order to protect themselves, consumers should be wary of being contacted out of the blue. If you have received a cold call, hang up and report the number to the Information Commissioner’s Office.

“Several investment scam attempts promise guaranteed high returns on low investments – these should be treated with extreme caution and financial guidance or advice should be taken before making a decision affecting your pension. If a deal sounds too good to be true, it usually is.”

TPR also said it encourages trustees to engage with their investment advisers, so they can focus on and prioritise the key areas of concern.

It added: “Recent events have shown how important it is that trustees are able to act quickly when needed.

“They should have robust procedures in place to help them respond to changing circumstances, make decisions and implement them where the need arises. Consideration should be given to whether adding one or more professional trustees would help in these circumstances.”

A gilt rout has particularly affected defined benefit (DB) pension schemes, such as final salary schemes. These schemes are often described as “gold-plated” because they promise members a certain level of income in retirement, based on their salary.

A key challenge for DB schemes has been the ability to access liquidity at short notice, in an environment when long-term interest rates rose rapidly in just a few days, the regulator said.

Members of defined contribution (DC) schemes, meanwhile, may have experienced a reduction in the value of their savings, particularly if they are invested in gilts, which have fallen in value as yields have risen over 2022, the TPR added.

DC savers tend to have a higher allocation to gilts as they approach retirement – so some savers close to retirement are more likely to have seen a greater fall in the value of their savings than members who are further away from retirement.

But for people looking to buy a retirement annuity, higher yields will also likely lead to improved rates, the regulator added. Annuities give people a guaranteed retirement income, often for the rest of their life.

The regulator said: “Individuals considering purchasing an annuity may find that they can achieve a materially higher pension as yield changes feed through to annuity rates.”

Laith Khalaf, head of investment analysis at AJ Bell, said: “The crisis in pension funds is one of liquidity rather than solvency, but the fear is that if left unchecked it could leak into other markets, threatening financial stability.”

He added: “Defined benefit pension schemes are at the centre of the current crisis, and yet there are several layers of protection which mean individual members of these schemes aren’t in the firing line.

“These schemes are known as ‘gold-plated’ for a reason, because not only are they generous, but they are guaranteed by the employer, or ex-employer, of the pension member.

“So even if the pension scheme doesn’t have enough assets to cover its liabilities, it can ask the employer to put more money in.

“The worst-case scenario is if the pension scheme doesn’t have enough assets to cover its liabilities, and in addition the employer goes bust. But even in this situation, the scheme will fold into the Pension Protection Fund (PPF), which will provide benefits to savers at, or close to, the promised level.”