Not very long ago, Pensions News (PN) received an email from (so the email said) the Department of Lotteries and State Loans, Madrid (Department).  The Department opened its email by congratulating PN on having received the email.  It went on to explain that the Department’s marketing department (actually, it was the Department’s “international” marketing department) had, in conjunction with other departments within the Department, selected PN to receive a cash prize. The cash prize was payable by the Department centrally on the authority of the marketing departments which were themselves acting on the authority of the Vice-President of the Department. 

The value of the cash prize payable to PN by the Department had been neither rounded down nor up (it was for 654,742 Euros) and it was, so the Department seemed to suggest, payable to PN because of PN’s ability simultaneously to live, breathe and successfully own a computer. By this uncanny (again, this seemed to be the thrust of the Department's message) ability, PN qualified for a “Category II” award which was a cash payment.

PN reflected on the wording of the email and the authenticity suggested by the unrounded number but had already recognised what other commentators have called the Nigerian Mark II scam email.  You, the reader, will recall that the Nigerian Mark I scam email asked the recipient for permission to deposit an unnaturally large sum of money in his/ her bank account.  The money, stated Nigerian Mark I scam email, needed to be deposited in the recipient’s account for a few days so that the sender could free his blocked funds - from which he would award the recipient of the email a huge amount of money the following day. All the recipient had to do was to provide his/ her bank account details and then, as it turned out (all too late for some), sit back and watch as his/her account was emptied of all funds.

Nigerian Mark II scam email is different inasmuch as it wants the recipient’s personal details and ,once it has them, it has the recipient.  The scam has been depressingly successful and the substance of the email that effects the scam has evidently been thought about by the sadistic someone who wrote it. The writer(s) of Nigerian Mark II scam email were careful to create the impression of a substantial system of official departments; all working together.  If, for instance, the international marketing department was contacting PN, it was (surely?) because there was a national marketing department which, also being based in Madrid, would be responsible for the domestic market.  Clearly (one is encouraged to think), if the vice-president of the Department has authorised a payment, it is because the president is too busy to do it him or herself.  Clearly he or she is engaged in other more significant projects - leaving the vice-president to do the work.  Recipients of Nigerian Mark II scam email are encouraged to claim their prizes quickly and without communicating with anyone other than the Department.  If prizes are unclaimed, someone (possibly the president of the Department on a quiet day) will go to the trouble of ensuring that the unclaimed monies are reinvested into the appropriate fund and then handed out to more willing recipients - someone other than PN perhaps.

As Mr Clive James once wrote, hoaxes work. It is a good reason for not liking them.  Hoaxers have a sadistic streak which is a good reason for not liking them either.  In many cases, including Nigerian Mark I email scam and the Mark II variant, people fall for them because they see no reason not to fall for them.  Life would be unbearable wouldn’t it if, every time one was offered something, one checked to see if the offeror was a fraudster.  So it is with the scammers who contact individuals who, short of money, will listen to anyone who tells them what they want to hear; that the cash in their pension plans, allegedly untouchable until at least their 55th birthday, can now be “unlocked” thanks to “new pension freedoms”.  

According to a survey carried out by the Phoenix Group, a lot of adults within the UK have been targeted by pension scammers.  The Government is currently considering legislating to prohibit cold-calling by scammers and it seems to PN that the Government would be well advised to move quickly and draft some cogent legislation to deal with the problem.  This is because, according to Phoenix Group, around 26% of adults in the UK were cold-called in the 12 months ending September 2016 by someone asking them if they would like to "review their pension or release some of their pension as cash" (or words to that effect).  The numbers of people being called is significantly higher than it was in the same period to September 2015.  The survey referred to above appears to compliment another statistic which came out earlier this month.  That statistic is that, since April 2015 when the law changed to permit (under certain circumstances and subject to certain conditions) individuals to access funds in their pension plans, approximately £9.2bn has been withdrawn from pension schemes or arrangements under the so-called pension freedoms.  It is likely that most of this money has been released legitimately.  This, however, is not the problem.  The problem highlighted with reference to this statistic seems to be in the advice individuals receive before withdrawing their pension monies. The advice, it is suggested, is either poor or it is good and being ignored because monies are being spent imprudently (in some cases). 

Although some pension professionals have welcomed the fact that pension monies can be and are being accessed, others have expressed concerns as to how pension monies have been used and what advice individuals have received before they used it (“used” in this context meaning "spent”). Perhaps, worried some, people had taken a statement from the person who was pensions minister (in 2015) literally.  PN’s readers will recall that that person indicated that he might not be overly concerned if an individual spent his / her pension monies on a certain brand of Italian sports car. It has to be said that when the then minister made this statement, his tongue was firmly in his cheek, but if one was listening to him on the radio or reading about him the next morning, that was hard to spot.

PN has previously reported that there are dire consequences for (often) victims of scams who take money out of their pension plans in circumstances where they ought not to have done. Where pension monies have been accessed outside the legislation (i.e. the legislation referred to as "pension freedoms”), HM Revenue & Customs regards this as an “unauthorised payment”. HMRC then has the power (which PN has seen it wield) to levy heavy tax charges plus penalties against the party it (vis. HMRC) regards as the recipient of the cash.  Put differently, that means that the victim of a scam is invariably liable to pay tax at the rate of 55% on an amount he or she has received and spent or, in a few particularly depressing cases, not received at all. 

Taking matters one stage further, it seems that the so-called pension freedoms are giving rise to still more unintended consequences.  Even some of those who lawfully withdrew money from their pension funds appear to be in for a distinctly unpleasant fiscal surprise.  Experts (some of them commenting in the Financial Times of 28/29 January and others in the Daily Telegraph on 1 February) have raised concerns that a large number of individuals may have paid incorrect tax on pension withdrawals. It seems that in many cases, it was unclear to advisers acting for those individuals what the appropriate marginal rate of tax was when assessing their clients’ liability to HMRC.  Logically (according to the articles), advisers deducted tax according to tax codes provided by HMRC however those codes were “often incorrect”.  Incorrect or not, taxpayers are likely to find that HMRC will return to collect tax where it deems an individual to have underpaid.

As readers will know, HMRC is a powerful institution in this country and it need not send oddly worded emails to get money out of individuals.  Neither does HMRC need to offer unrealistic amounts of cash as a reward for co-operation.  All it does and all it needs to do is to say that it is owed money and that it is coming to get it if the individual fails to pay.  As PN suggested at the start of this piece, Nigerian Mark II scam email opens with the word “Congratulations!”.  To PN’s mind, the word detracts from the credibility of everything that follows the email’s opening word and it should (and hopefully will in future) alert the recipient to the fact that the substance of the email is not to be believed.  HMRC never opens a communication about tax with the word “Congratulations!” which is how a reader can tell that its message is genuine.

Until next time…...