Protecting Pensions: Essential advice to mitigate fraud risks
In the ever-evolving landscape of financial fraud, the pensions sector faces growing threats that demand immediate attention and proactive measures.
Drawing from expert insights, here are three crucial pieces of advice for tackling fraud in the pensions sector and safeguarding the future of retirement funds.
Recognise emerging threats and learn from other financial sectors
The first step in addressing fraud in the pensions sector is acknowledging that the threats currently affecting banks and insurance companies will soon impact pensions. Denial and lack of awareness can leave the sector vulnerable to sophisticated fraud schemes.
As sectors like banking, insurance, and gaming transitioned to digital, they encountered new fraud threats, providing valuable lessons for the pensions industry. In banking, account takeover fraud surged as fraudsters exploited weak security, leading to significant financial losses until multi-factor authentication and real-time monitoring were adopted.
Similarly, the insurance sector faced synthetic identity fraud, where criminals used fake identities to make false claims, costing billions before advanced verification systems were implemented. In gaming, issues like bonus abuse and account hijacking eroded trust until two-factor authentication and fraud detection tools were introduced.
The key takeaway for the pensions sector is that delaying the adoption of robust fraud prevention measures could expose it to similar risks as these industries faced, impacting both finances and trust.
Digital Pensions Fraud: The latest challenges for schemes
Our whitepaper highlights the growing risk of digital pension fraud. It outlines how criminals exploit weaknesses in pension scheme defences through tactics like synthetic IDs and account takeovers.
The report emphasises the importance of enhanced identity verification and the use of advanced fraud prevention technologies. Key recommendations include leveraging digital tools and data analytics to better detect and prevent fraud, improving trust and security across pension schemes.
Implement advanced fraud controls and technologies
Once awareness is established, the next step is to adopt and implement advanced fraud controls. While the pensions sector may not have the same financial resources as banks, it's vital to start incorporating sophisticated fraud prevention measures.
Data collection and analysis
Begin by collecting IP address data and protecting members from synthetic IDs and other emerging threats. Advanced data analytics and real-time monitoring can help detect and prevent fraudulent activities before they cause significant harm.
Maintaining an up-to-date record of email addresses, along with any changes to them and other contact methods (such as addresses and telephone numbers), is essential. This practice not only ensures effective communication with your members but also helps to identify discrepancies, such as erroneous address changes, particularly when a member relocates abroad.
Cost-effective solutions
Although some of the latest fraud controls may currently be perceived as an additional expense they will reap benefits in the future as digitisation accelerates. It's a journey that requires continuous evaluation and adoption of cost-effective solutions as they become available.
Foster collaboration and influence decision makers
Effective fraud prevention cannot happen in isolation. Collaboration and communication within the sector and with external stakeholders are crucial for creating a robust defence against fraud, including seeking out working groups established by associations.
Engage with decision makers
It's important to engage with those who have the power to influence and allocate resources, such as trustees and senior management. Raising awareness and gaining support from these key decision makers is essential for securing the necessary funds and commitment to implement effective fraud prevention measures.
Top-down and bottom-up approach
A combined approach that involves both top-down and bottom-up messaging can ensure a comprehensive understanding and acknowledgement of the problem.
This means educating all levels of the organisation, from frontline employees to top executives, about the importance of fraud prevention and the specific risks facing the pensions sector.
A growing concern in pensions
Data cleansing and the power of accuracy
Data cleansing is vital for pension schemes due to several key reasons. Firstly, accurate data ensures the correct calculation and timely payment of benefits, which is crucial for maintaining trust and satisfaction among members. Incorrect or outdated information can lead to errors in benefit calculations, resulting in underpayments or overpayments, which can have significant financial and reputational consequences.
Secondly, clean data enhances the efficiency of administrative processes. It reduces the time and resources spent on correcting errors and tracking down accurate information. This efficiency translates into cost savings and allows pension schemes to focus on strategic activities rather than on fixing data issues.
Moreover, regulatory compliance is a critical aspect of pension scheme management. Clean data ensures that schemes meet regulatory requirements and reporting standards. Failure to comply can lead to fines and legal penalties.
Data cleansing also supports effective communication. Accurate contact information ensures that important updates and information reach members promptly. This is particularly important during critical times such as policy changes or financial reviews.
Lastly, clean data facilitates better decision-making and forecasting. Reliable data allows for accurate actuarial assessments and financial planning, helping pension schemes to remain sustainable and secure for the long term. Overall, data cleansing is fundamental for the smooth operation, compliance, and member satisfaction of pension schemes. Striving for complete and accurate data reduces the chance of fraud from the get-go.
The crucial role of data cleansing
Accurate, cleansed data is vital for successful digital pension platforms. LexisNexis® Risk Solutions offers a free data audit to help schemes improve their data accuracy, ensuring better member engagement, reduced fraud risks, and operational efficiency.
With advanced tools like LexisNexis® LexID®, pension schemes can trace members who have moved or passed away, verify identities, and enhance contact information, all while improving data accuracy. This enables better digital services and trust in member communications, helping schemes prepare for the Pensions Dashboard and beyond.
