May 21, 2020 | Other

Pension Fraud Threat During COVID-19

The onset of the COVID-19 pandemic has brought the issue of pension fraud to the fore. The biggest concern for many individuals approaching retirement is the dropping value of their pension funds caused by ongoing associated global economic instability.

By Alex Beavan, Head of Fraud Investigation, Western Union Business Solutions

This, and ongoing welfare issues caused by sudden unemployment and a change in circumstances has prompted many to release funds early. Fraudsters are dynamic in their approach and have anticipated this by setting up various investments scams to lure unsuspecting individuals to part with their life savings. 

But there is potentially a greater issue on the horizon for pension providers themselves in the form of deceased benefit fraud. With the number of deaths caused by the pandemic steadily growing, increased clarity around potential impacts to those with pre-existing conditions and the concern of additional COVID-19 ‘waves’ on the horizon, the number of individuals falsely claiming pensions on behalf of recently deceased individuals is likely to rise. That is not to say those falsely claiming will be typical fraudsters or organised crime gangs. Pension providers are likely to face the very real prospect of many hard up and impoverished relatives continuing to claim on behalf of dead relatives just to continue to survive in these very difficult times. As such, chasing down such claims could leave providers with a moral dilemma on what is already a very emotive subject.

The true extent of deceased benefit fraud has always been an issue. Some providers globally have either failed to tackle the issue with appropriate safeguards, such as proper regular existence checks, or have just not been aware of the problem through lack of an organised fraud prevention program and associated policies. Existence checks rely on heavily on government record keeping, quality credit reports, and extensive use of providers of such services. Yet, there seems to be a reluctance amongst some providers to outsource these checks, either because of associated costs or a failure to understand the scope and extent of the problem.

As far back as 2003, an investigation in the UK showed more than 100,000 people were still claiming on behalf of relations who had died. In 2012, it was assessed that nearly one fifth of UK pension schemes had suffered fraud, and it was identified that tighter checks around pensions continuing to be paid after death was necessary. However, some government-led agencies have been proactive in their detection policy. For example, in the UK the government’s National Fraud Initiative prevented GBP 144.8M in pension fraud and overpayments around deceased beneficiaries between 2016 and 2018. Some media claims put the current figures for pension fraud in the UK alone as high as GBP 200M. This, in part, has shown the true extent of the problem faced globally by all providers.

The most common methodologies include relatives or next-of-kin failing to notify the providers about the deceased and continuing to claim on their behalf. There are also cases where, in instances where the provisions of the pension agreement allow continuing claims, the claimants fabricate their circumstances such as being married to the deceased. Other scenarios included unidentified claimants and pensions being transferred to unknown sources. These could suggest organised crime group involvement. Forged documentation will be utilised at some point during the commission of these crimes.

Failing to tackle the issue of deceased benefit fraud has a knock-on effect. Providers will have lost money and will spend further with civil recovery agencies chasing this associated debt. Insurance providers will likely suffer associated loses and thus increase premiums. Finally there will most likely be more work for Law Enforcement as providers choose to seek criminal redress.

These are difficult times for all, but it is not the job of pension providers to pay out ‘free money’ to false claimants who chose that path because of economic hardship. It should also be noted and is borne out by case studies that in some instance’s hardship plays no part and false claimants use the proceeds of these crimes to fund lavish lifestyles.

If action is not taken, the consequences are glaringly obvious, not least bona fide claimants whose returns or ability to legitimately claim may be affected.

Contact a Pension Specialist now