The BBC News reported yesterday that an investigation has been launched into claims that details of millions of people’s pensions are being sold to fraudsters and cold-calling firms. This includes the sale of “highly sensitive details of salaries, investments and pensions”, and this increases the risk that unscrupulous businesses, and criminal gangs, may exploit these details through financial scams.
The changes to pension access in April 2015 are the most significant change since the 1986 Social Security Act, and introduce flexibility in how individuals access their pensions. These changes include:
- People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
- Tax changes make it easier to pass pension savings on to descendants
Although these changes may empower individuals to have more choice and control over their pension funds, it also increases the risk of unscrupulous individuals and companies targeting pensioners in order to exploit this rich source of income. The BBC report suggests that 300,000 people are expected to be able to take immediate advantage of changes in pension rules on 6 April. As a result there may be easy pickings for financial scammers set on luring unsuspecting victims with promises of high returns or property investment opportunities.
Concern is now being expressed nationally about the risks posed by these pension changes which may open the flood gates to those wishing to exploit older people and those nearing retirement. Age UK (2014) has suggested that pension changes may leave older people at increased risk of financial scams, with the result that they will lose money essential for their retirement. The Association of British Insurers (ABI) has advised people to be on their guard against unsolicited approaches from financial companies, and the Financial Services Authority has set up ‘Scamsmart’, a national conscious raising scheme to develop increased awareness of the risks posed by financial scams.
It is increasingly important that professionals working with older people become aware of the risks posed by financial scams. Unscrupulous business and financial scammers use marketing language and jargon to make scams appear plausible. They use grooming techniques to gain the trust of unsuspecting victims. It is vital that professionals become aware of the warning signs, alongside understanding of why individuals get caught up in financial scams. This includes developing understanding of the complex psycho-social factors which may make older people more vulnerable to financial scams including cognitive factors (James et al. 2014), poor financial literacy (Atkinson et al. 2006; Lusardi 2009), and social isolation (OFT, 2009).
Safeguarding those at risk of financial scams can be challenging, particularly as older people are less likely to report their involvement in financial scams or to seek recourse (Pak & Shadel, 2011). The financial services sector and agencies involved in adult safeguarding need to consider how best to empower older people to make wise and informed financial decisions at a time when they may be overwhelmed by cold calls and unsolicited advice from potential fraudsters.
To find out more:
- Atkinson A, McKay S, Kempson E, and Collard, S. (2006) Levels of Financial
Capability In the UK: results of a Baseline Study. Bristol: Personal Finance
Research Centre, University of Bristol and FSA.
- James, B.J., Boyle, P.A., and Bennett, D.A. , Correlates of Susceptibility to Scams in Older Adults Without Dementia, Journal of Elder Abuse and Neglect, 26(2)107-122
- Lusardi, A. (2009) The Importance of Financial Literacy, NBER Reporter, 2, 13 –
- Office of Fair Trading (2009) The Psychology of scams: Provoking and committing errors of judgement, Prepared for the Office of Fair Trading by the University of Exeter School of Psychology
- Pak, K., & Shadel, D. (2011, March). AARP Foundation national fraud victim study. Washington, DC: AARP Foundation National. Retrieved from http://www.aarp.org/money/scamsfraud/info-03-2011/fraud-victims-11.htm