Savers are being scammed during pandemic

There has been a steep rise in 'red flag' cases, with half of pension transfer requests triggering concerns, according to XPS Pensions

Savers looking to ditch final salary pensions could be at heightened risk of moving to suspicious schemes during the coronavirus pandemic.

A steep rise in 'red flag' cases, which have one or more hallmarks of a scam, has been highlighted by anti-fraud detectors hired out to employers by consultancy firm XPS Pensions .

The number of pension transfer requests triggering concern was about one in eight between 2015 and 2018, rising to about one in three until June this year, before jumping to half of all cases in July and August, according to XPS.

The firm has detected a spike in people trying to leave secure final salary pensions for schemes charging exorbitant and unnecessary fees which they don't understand, a typical sign that they are fraudulent.

This trend may be a result of people urgently wanting to get at their savings due to current economic conditions, according to XPS.

It has reported its data to MPs on the work and pensions select committee who are currently investigating scams.

Savers who decided to move their pension after being targeted by a cold call fell from 22 per cent to 2 per cent between 2016 and 2020, according to XPS.

Pension cold calls are now banned following an industry campaign.

XPS offers a fraud protection service to employers in sectors including manufacturing, IT, universities, energy and charities, and helps their pension scheme members who seek to leave.

It tracks and analyses scam activity, and identifies and follows up 40 possible red flags when members request transfers, overwhelming out of final salary schemes.

However, it also deals with a very small number of transfers from defined contribution schemes.

XPS says a receiving scheme charging high fees might not be a scam in itself, but some people may be moving to high-cost arrangements they do not need or understand.

Lack of understanding of a pension transfer in general is also a red flag that merits further investigation, according to XPS.

This could be an understanding of who is involved in the transfer process, the nature of the arrangement they are transferring to, or not having read all the necessary documentation, says Colin Miller, head of the member engagement hub.

It is important that we investigate areas where there is low member understanding as this could indicate that they are moving to an unsuitable arrangement. Worse they may be a victim of a scam because an intermediary has initiated the process and done all the work for them, a common approach used by scammers, Miller said.

Fears were raised at the outset of the pandemic that savers who are under financial pressure or have lost jobs could be vulnerable to scammers tempting them to transfer pensions into dodgy investments, or unlock pension pots early.