Pension savers who want to take a lump sum upon retirement are vulnerable to scams. Pension funds could warn their members about the risks involved, according to Jos Heuvelman, head of financial product supervision at financial conduct regulator AFM.

From 1 July 2023, pension savers will have the opportunity to take a lump sum payment of up to 10% of their pension savings. They can use the money to pay for a car, a cruise or some other large expense but they will also have to deal with fraudsters who will try to steal their money, Heuvelman warned.

“Where there is investment, there is fraud,” said Heuvelman at an AFM press event last week.

“In the investment world we continuously see scams that try to fool people. As of next year, we will see a systematic flow of additional private money into the market, which could amount to a few billion euros. That’s worth the effort for scammers. Even if they can only take 0.1% of this, it’s still a profitable business model,” he said.

UK experience

Heuvelman based his warnings on experiences in the UK after the lump sum introduction there in 2015. At the time, one in three pension savers that took a lump sum were approached by fraudsters, according to insurer Phoenix Life, and up to £10bn in pension assets was lost to these scammers, according to estimates.

Pension funds are required to offer their members guidance and help about lump sum options, according to Heuvelman. This should not only be about the consequences on taxes or the future level of pension benefits, but must also involve fraud risks, he noted.

“People who have never dealt with large sums of money will suddenly have tens of thousands of euros at their disposal, Not everybody can deal with this well,” said Heuvelman. He added: “Scammers also know this. So people need to be alerted to these risks.”

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