Pam Atherton finds out what types of pension scheme fraud still exist in today's heavily regulated environment and whether any more can be done to stop benefit crime

John Kenneth Galbraith, the visionary American economist, once noted that the Great Wall Street Crash of 1929 prompted more people to embezzle rather than jump off tall buildings.

Pension scheme trustees are therefore bracing themselves for a possible upsurge in fraud as the harsh economic climate drives individuals to adopt some desperate measures.
Fraudulent activity related to pension schemes comes in a variety of guises. Most commonly it occurs where a surviving spouse fails to inform the scheme, either deliberately or inadvertently, of their spouse's death and continues to receive benefits.
A relative or friend, who has power of attorney and control over a pensioner's bank account, may also be involved if they fail to inform the trustee board of the unfortunate change in circumstances.

CIFAS, the anti-fraud agency, estimates that there were 40,000 cases of people accessing the benefits of the deceased in 2007.

Other instances of fraud have involved a member actually staging her own death and then impersonating her sister in front of the police in order to claim her own death benefits. Such crimes are not altogether uncommon.

A pension auditor and trustee, who did not wish to be named, recalls one particular case when a member attempted to gain access to her pension early by "claiming that she was five years older than she really was so that she could obtain her pension at age 60. When the trustees asked for her birth certificate, they discovered she had lied about her age on her CV when she first joined the company and was promptly sacked".

Fraud can also arise where temporary workers, without National Insurance (NI) numbers or with fraudulently obtained NI numbers, have been employed. "It is a well known fact that there are 15 million more National Insurance numbers in existence than there are working adults in the UK, so there are millions of numbers which can potentially
be used by fraudsters," says the anonymous trustee.

Daniel Bescoby, of Capita Hartshead, a consultant to 15 smaller pension schemes, says he has come across instances of fraud involving children's pensions. A girl, who was only entitled to a child's pension after age 18 if she was in full time education, had forged a letter from her former tutor on college notepaper.

The fraud was only detected when the administrators sent a review letter six months later to her college. It responded saying that the girl had withdrawn from her course a year earlier and that the original letter was a fake.

Information provided by third parties may also be the means by which fraud is uncovered.

Bescoby relates a case where a widower continued to receive his deceased wife's pension for a year after her death. The pension was paid to his bank account because his wife did not have one and her daughters, who were the executors of her estate, claimed they were unaware of a pension in payment.

The wife's death was eventually reported to the administrators by a friend of the deceased.

Ways to tackle fraud
Mark Rugman of the Royal Mail Pension Scheme, which has a large number of temporary workers, says the scheme has recently undertaken an attestation exercise, which requires signatures of members to be witnessed by a solicitor.

"We visit members where mail has been returned or we have suspicions that a death has not been notified. For overseas pensioners, depending on the country, we investigate, but in some cases we have to weigh up whether it is worth the cost," says Rugman.

Hiring private investigation firms to keep tabs on pensioners is also something that administrators such as rpmi regularly do. Colin Skitmore, head of benefits administration at rpmi, admits that the company employs an agency every two years to make direct contact with 17 pensioners it has on its books who reside in Nigeria, mainly due to the country's "increased risk of fraudulent claims".

Other various methods of reducing fraud are well known, but always foolproof. For example, many schemes use annual or triennial certificates of existence to verify the existence of their members, although this is still a process that is open to abuse.

Figures from the National Fraud Initiative (NFI), set up by the Conservative Government in 1996 to tackle fraudulent claims on pension schemes and state benefits, bear this problem out.

Since 1996, £450 million of fraud and overpayments have been identified - £140 million of which was discovered in 2006-07 and £111 million in 2004-05. Two thousand cases of deceased pensioner fraud have been discovered by the NFI, even though the schemes had received certificates of existence.

Both private and public sector schemes can use the NFI to match their data against various government databases and its work on the civil service scheme is thought to be saving the Government £780,000 a year.

Tracing agencies
A number of companies, such as the Faraday Tracing Bureau and Tracesmart, offer mortality screening services whereby membership data can be checked against entries in the Register of Deaths for any period going back to 1974. Administration firms such as rpmi also cross reference their pensioners' names against the General Registry Office's database every week.

The most serious cases may require the use of private investigators, although a few simple enquiries by the trustees may be sufficient. One trustee, who again declined to be named, said he had even investigated a suspected fraudulent claimant himself as the woman concerned happened to be a neighbour - which just goes to show how diligent and committed many trustees actually are.

John Cartwright of Keypoint Services, which has done investigative work for ICI and BA, says Keypoint uncovered a group of fraudulent claims in respect of dead ICI pensioners where there was criminal intent.

"We found a lady who was living in a care home and her deceased husband's pension was knowingly being paid direct to her care home. Some cases were taken to court and the individuals received suspended sentences.

"Whether the money can be recouped depends on whether we think the fraudster is in a position to repay it. In another case, we found an architect milking the system. We interviewed him under caution and he offered to repay the money immediately," says Cartwright.

Capita Hartshead's Bescoby says that very long standing fraud is often identified during wind-ups where the data has been poorly maintained for years. "Pensions should always be paid to a bank account wherever possible, as banks are normally good at informing schemes when an account holder dies," says Bescoby.

Trustees' duties
Trustees are of course duty bound to ensure that the correct amount of benefit is paid at the right time and to the right people.

Pension scheme auditors will typically ask about the steps trustees have taken to ensure that their data is accurate and that scheme benefits are being paid to legitimate beneficiaries.

It is for the trustees to consider whether a data check of the entire scheme is appropriate every year or not, although it is more common for trustees to conduct regular checks only on high risk groups.

Trustees need to act quickly when fraud is discovered, as the longer the period of the fraud, the harder it can be to reclaim the money. But some schemes remain undaunted.
At one of the UK's largest pension schemes, the administrators told Pensions Age that they always endeavour to reclaim overpaid pensions: "We reduce the spouse's pension. If there isn't one, we make a claim on the estate."

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