According to a leading firm of accountants who specialise in advising pension funds on fraud mitigation, the incidence of pension fraud against funds is still worryingly high with nearly a fifth of all schemes reporting at least one such event within the last 2 years. What is also rather worrying is that as many as 25% of fund trustees don’t even realise that they are responsible for the detection and prevention of fraud.
With public sector pensions alone suffering over £20m of fraud in 2012 according to the National Fraud Authority’s Annual Fraud Indicator, it is sobering to reflect on what the total figure might be for the pensions industry as a whole. The accountants’ report also found that trustees of third-party administered schemes may be relying too heavily on their external provider to mitigate fraud risk rather than investing the additional resources necessary to tackle the issue themselves.
The relentless rise of cyber fraud has added a dangerous new dimension to the challenge posed by criminals and trustees are urged to take specialist advice on how they can best tackle this growing threat.
Interestingly, over two thirds of all reported cases fell into just two categories of fraud with pensioner existence the most common on 41% ahead of pension liberation on 28%. The figure for pensioner existence is hardly surprising when one considers that the report identified that members’ transactions and the accuracy of member data were the two areas where schemes were at most risk.
It seems that many relatives of deceased pensioners still try to receive payments on their behalf long after the date of death. The mortality screening service operated by the National Fraud Initiative can alert users to deaths of UK citizens overseas as well as here in the UK and is obviously an extremely useful tool for trustees but the fact remains that cases are still slipping through the net. In response to this, the accountants have helped administrators to identify areas of their pensioner population where fraud risk might be considered to be highest and made recommendations for the administrator to perform further existence testing to make sure no further undetected cases existed.
Although in number two spot, the percentage figure for pension liberation fraud ( PLF ) is significant because it is rising fast and this rapid growth is not going unnoticed by the pension regulator which has issued specific guidance to trustees to help pinpoint and prevent this form of abuse. Potential warning signs are members attempting to access their pension before they have reached the age of 55, the receiving scheme is not registered with or has only recently been registered with HMRC and a receiving scheme which was not previously known to the transferor is now involved in more than one transfer request.
With auto-enrolment swelling the value of pension schemes, they are bound to attract the attention of fraudsters even more and the accountants conclude their report by urging trustees to test their internal risk controls much more frequently as this appears to be the single most effective weapon in stemming the rising tide of fraudulent activity.