Flagship UK pension scheme hit by £1.4m fraud

July 17, 2013 11:45 am

Flagship UK pension scheme hit by £1.4m fraud

By Josephine Cumbo

The body behind the government-run pension scheme, the National Employment Savings Trust (Nest), has been forced to tighten its security controls after falling victim to a £1.4m fraud. The Nest Corporation, a trustee body that operates at arm’s length to the UK government and runs the Nest pension scheme, disclosed the loss in its annual accounts, presented to parliament on Tuesday.Nest stressed that no members’ pension money was lost in the criminal attack on the Corporation, not the Nest pension scheme, which has £6m under management.

The fraud involved the diversion of a supplier payment from the Nest Corporation in December last year. It was described as “mandate” fraud where a criminal persuades an organisation or individual to change a direct debit, standing order or bank transfer mandate, by purporting to be an organisation you make regular payments to.

Following the fraud discovery, Tim Jones, the Nest Corporation chief executive, said there was no evidence of “staff or supplier” collusion in the fraud and that he was “happy to take responsibility” for the loss.

“The fraud loss Nest Corporation incurred represented a serious failure in our system of internal controls,” said Mr Jones.

“On learning of this, I moved immediately to close down our exposure to any further attack of this nature and we promptly informed the Department for Work and Pensions, police and relevant regulatory authorities.

“A series of actions to seek recovery of the monies, tighten our controls framework and review business processes across Nest Corporation have been undertaken.

Mr Jones said he had considered his position after discovering the fraud and added that he “would have walked if the government or trustees had asked me to but I was not asked to go”.

However, Mr Jones said he would not take a performance-related bonus for the year. In the 2012/13 accounts Mr Jones was awarded a £15,000-£20,000 bonus for performance in the previous financial year.

The fraud disclosure came as Nest, which was established to support the government’s automatic enrolment initiative, reported an “exponential” increase in volumes.

In the year to the end of March, the Nest pension scheme grew from 849 to 80,406 members with £0.5m to £6m assets under management. The number of employers that signed up to the scheme grew from 200 to 347.

In the annual statement, Nest said it expected further large employers to start using its scheme for some or all of their eligible workforces. During 2012/13, household names such as McDonald’s, the BBC, British Telecom and the Compass Group had signed up to Nest.

Last week, the government announced it would remove the saving and transfer restrictions on Nest members from 2017, allowing the government-backed pension scheme to compete fully against its private sector rivals.