Pensions sector losing £6bn annually to fraud
6 Mar 2020
The pensions sector is losing £6bn a year to fraud with private pensions most at risk from investment and payment scams
6 Mar 2020
The loss to private pensions is estimated at £4.9bn, made up of investment fraud and payment fraud at £2.88bn and £1.68bn a year respectively, with an additional £330m lost to payroll and purchasing fraud.
Government and public sector pensions are estimated to be losing £1.1bn a year.
The pensions sector remains at critical risk to fraud, given the scale, sum and diversity of investments pensions schemes are responsible for, combined with counter fraud and cybercrime processes, which are not yet fully adapted to very rapidly evolving threats, according to the research from Crowe and the University of Portsmouth Centre for Counter Fraud Studies.
Pensioners and prospective pension beneficiaries – who tend to have low levels of engagement with their retirement savings and finances – are also seen by fraudsters as easy targets, particularly if documents can be easily purchased, corrupted or faked.
The research identifies the chief risks to the pensions sector as internal fraud, identity fraud and cybercrime.
On internal fraud there is evidence of corrupt insiders investing in inappropriate funds and organised fraudsters targeting staff running pensions funds.
Identity fraud has been increasing in prevalence, driven by advances in technology and the rise of the Dark Web enabling fraudsters to openly sell stolen or fake personal information online, while the use of digital technologies to administer pension schemes creates new vulnerabilities.
For example, there are instances of the impersonation of legitimate beneficiaries to divert payments, the hacking of systems to alter records for the purpose of fraud or to secure the personal information of pension holders.
While all organisations are vulnerable to cybercrime, the pensions sector appears to be lagging behind. Crowe’s 2019 ‘Pensions Risk Management Report’ found that 25% of schemes surveyed did not have plans in place to respond to cybercrime and only 33% of schemes had received cybercrime scenario-based training.
Jim Gee, partner and head of counter fraud at Crowe, said: ‘It is time for the industry to review whether it is doing enough.
‘Think of the extensive protection the banking sector places around comparatively small sums held in current accounts versus the less extensive protection around much larger sums in pension pots. This simply does not add up.
‘There are gaps in the resilience of pension schemes and their administrators to fraud and cybercrime. The sector must come together to drive up standards of awareness and preparedness.
‘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.’