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Regulation

Witnesses at UK Parliament Hearing Say Pension Scammers Have the Upper Hand

Regulators have struggled to keep up with the crooks since pension freedoms were enacted.
By Michael Katz


Pension scams seem to abide by the first law of thermodynamics in the UK in that they don’t ever go away, but are simply converted into a different form. At least that was the sentiment during a recent Parliamentary hearing about the impact of pension freedoms on pension scams.

The so-called pension freedoms were changes made to UK pension laws in 2015 that gave people more flexibility regarding how they access their pension savings. However, experts have said the loosening of access to savings also made it easier for people to be scammed out of their retirement nest egg. The hearing, which was held last week by the Work and Pensions Committee, looked at how people are protected as they move from saving for retirement to using their pension savings.

“The truth is no one really knows how many pension scams there are,” because of a lack of sufficient data, said Margaret Snowdon, chair of the Pension Scams Industry Group (PSIG), who was one of the witnesses who spoke at the hearing. Snowdon estimated that 40,000 Britons are getting scammed out of at least part of their pension each year.

She also said that while she doesn’t think the pension scam problem is getting worse, scammers are changing and adapting as their tactics are made public. “That’s what scams do,” Snowdon said. “They’ve changed over the years, but I think that the problem remains roughly the same scale.”

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However, Andy Agathangelou, founder of Transparency Task Force, an organization that pushes for transparency in financial services, was more pessimistic.

“I personally think that the matter is getting worse,” Agathangelou said at the hearing. He said he based his opinion on anecdotal evidence around what has happened as a consequence of the COVID-19 pandemic.

“Many people are becoming financially distressed and they, therefore, become an even easier target for crooks and scammers,” Agathangelou said. “The scammers have confidence and knowledge that they can trick people into moving their pension funds elsewhere.”

Agathangelou agreed with Snowdon that there’s not enough data on scams, but said that when there eventually is reasonable data on pension scams, particularly those that are happening during COVID-19, “I think we’re going to be seeing some very worrying data indeed.”

The hearing also discussed how scammers were using technology, particularly the internet, social media, and texting, to prey on victims.

“Organized criminals are extremely good at harnessing the bad power of the internet,” Agathangelou said. “They are using the internet very, very successfully. The internet is riddled with bear traps for people with money, lots of trip wires, easy to get caught.”

Agathangelou cited an example of a pension scam victim being lured by an initial text that simply read, “Are you confident that your frozen pension is safe?” He said that kind of language is very effective at taking people in as many in the UK are mistrustful of the pensions and finance industries.

“The crooks know how to use the internet and the crooks have built years and years of experience of how to get to people,” Agathangelou said. “The big worry, of course, is that unless the regulators clamp down on this, it is a phenomenally scalable business for these crooks.”

He also said that despite many volunteers alerting regulators to rogue advertisements that are fronts for criminal activity, he’s “not convinced that all of that alerting that is being done is being effectively picked up by the regulators.”

The panel experts also discussed what could be done to better protect people from pension scams.

Richard Piggin, head of external affairs and campaigns for UK consumer advocacy group Which?, said during the hearing that he would look beyond the pensions industry to social media, which he called an “enabler of scams” and investigate the responsibility social media giants should be given to protect people. 

Snowdon and Agathangelou said pension plan trustees and providers have a responsibility to look after participants, particularly when they are considering transferring out of a plan, and have the best oversight as to whether or not something is likely to be a scam. However, they noted that trustees are currently powerless to do anything about this.

“At the moment their hands are tied,” Agathangelou said. “They are toothless and they need to be supported so they can do their job of looking after scheme members properly. That’s where the energy should be focused.”

The panel experts also lamented the lack of prosecutions of known scammers by law enforcement. Snowdon said there are so few prosecutions that “you can probably count them on the fingers of your hands. There aren’t many, but there are some.”

Agathangelou said scammers are not only getting away with their crimes, but that people who have complained about the scams on social media have received threatening letters from the scammer’s lawyers.

“The harsh reality is that there are many high-profile, known crooks who appear to be running rings around the regulators,” Agathangelou said.

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Home > News > Market Moves > Banks Still Are Too Weak and Risky, Kashkari Says
Market Moves

Banks Still Are Too Weak and Risky, Kashkari Says

Minneapolis Fed head, decrying two bailouts in 12 years, says lenders need more equity capital to buffer against tough times.
By Larry Light


So you thought banks were safer, now that they boosted their capital as a buffer against bad times a la the 2008 financial crisis? Guess again, says Neel Kashkari, the president of the Minneapolis Federal Reserve Bank.

”Large, unacceptable risks remain,” Kashkari told a virtual conference hosted by the Council of Institutional Investors (CII) Friday.

He ought to know. In 2008, as a high-ranking official in the US Treasury Department, he oversaw the Troubled Asset Relief Program, or TARP, which purchased toxic mortgages and other bum real estate assets from financial institutions. “How can it possibly be this fragile?” he asked the conference.

The regional Fed chief said it was “absurd” that Washington had to bail out the banks twice in less than 20 years. He noted that the big lenders have “enormous influence on Capitol Hill.” Kashkari called on pension funds and other big institutions to use their influence with banks to make themselves safer.

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Following the 2008-09 crisis, banks faced the new Dodd-Frank law and other restrictions on their behavior—chiefly a requirement that they boost their equity capital, so they would have a bigger buffer during the next downturn. And, indeed, large banks almost doubled equity capital, to the current 13% of risk-weighted assets. But Kashkari said his regional Fed bank calculated that they should be at least at 24%.

The big banks complain that such rules make them less competitive and harm their ability to make loans. Lending, of course, benefits economic growth. Kashkari, however, said the lending-constraints argument was ridiculous because the lenders have robust stock buyback programs, designed to buck up share prices. “If capital was constraining lending,” he asked, “why were they buying back their stock? It is nonsense.”

The last crisis saw the Fed pumping billions into the banking system. And the central bank did it again in recent months, he said, by backstopping banks when the repurchase (aka repo) market froze—the arrangement where banks borrow overnight to gain a small but helpful return. “I keep asking myself,” he said, “what kind of absurd financial system do we have that requires the central bank to bail it out every decade?”

Hasn’t Washington policy “masked weakness” in the economic system, asked Ash Williams, who chairs CII’s board and is the CIO of the Florida State Board of Administration, which oversees the state pension fund. Williams, who moderated Kashkari’s talk, pointed out that programs such as the Paycheck Protection Plan (PPP) subsidized businesses but underlying vulnerabilities remained. “Isn’t there are disconnect between the real economy and financial institutions?” he asked.

Kashkari agreed and warned that, if the coronavirus lasted another year or more, ”there will be a lot more pain.”

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