The Pensions Administration Standards Association (Pasa) has published its Counter Fraud Guidance for UK pension schemes, trustees and providers, after industry research revealed that fraud is costing the pensions industry £6.2bn per year.

Speaking at the launch of the guidance, Crowe national head of forensic services partner, Jim Gee, warned that fraud was a “significant problem that affects beneficiaries directly and indirectly".

“Even before Covid-19, there's been a big increase in the cost of fraud over the last 12 years or so," he commented.

Gee attributed the increase to a number of factors, including lower adherence to to collective moral and ethical norms, greater complexity of processes, more transactions being undertaken by computer, and an increasing pace of business change.

He also warned that this trend is increasing further, highlighting figures from the Office for National Statistics, which showed that when comparing the 12 months ending March 2020 with the 12 months ending December 2020, there has been a 21 per cent increase in incidences of fraud.

“So we need to recognise that this is something which is relevant, serious in the pensions sector, and we need to review our protection and make sure we’re properly protected,” he added.

Adding to this, The Pensions Regulator (TPR) policy lead, Lucy Stone, emphasised that in addition to the losses arising from fraud, TPR has estimated that "at least" half a billion pounds has been lost to pension scams, with one in four savers taking less than 24 hours to decide on a pensions offer.

She also noted that whilst Covid-19 has led to a number of administrator changes in working practices, such as working from home and the use of electronic documents, only half of schemes had done a risk assessment of all changes in respect of fraud, while a “worrying” 10 per cent had not risk assessed at all.

In light of this, she emphasised that fraud is evolving, urging the industry to use the guidance from Pasa as a “framework” with which to start tackling fraud.

Gee added: “Fraud is a pernicious problem. Along with the serious financial damage pension fraud can do to an individual or member, the resulting bigger picture is an undermining of confidence in pensions administration and an eroding of trust in our industry.

“This guidance has been created to provide an understanding of the range and potential for fraud, and a common language about what needs to be done."

In particular, the guidance is focused on three main areas, including the legal and regulatory landscape, such as whether the organisation understands different types of fraud and has sought relevant legal advice.

This is alongside a focus on understanding an organisation’s vulnerability to fraud, such as through suppliers and the potential cost impact, and ensuring an organisation is resilient to fraud.

It is also expected to be regularly updated by the Pasa Fraud and Cybercrime Working Group in order to "match the speed of evolution of the phenomenon of fraud itself".

Commenting on the guidance, Pasa chair, Kim Gubler, added: “As a sector we have significant amounts of money being paid and invested every day, but the level of protection in place is much less than provided to the average bank account. It’s no wonder the momentum around pensions fraud has been growing exponentially.

“This is an issue we need to tackle head on if we are to maintain control of the situation and to stay one step ahead of ever more sophisticated deception. I urge the industry to read our guidance and take swift action.”

Speaking at the virtual launch, Stone also addressed concerns that pensions dashboards could increase the risk of fraud, reassuring however, that this risk is “very much on the radar of all the parties involved in the pensions dashboard”.

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