Every day, fraudsters are using more and more sophisticated ways to part money from savers. Pension scams are on the rise and include offers of ‘free pension reviews’, ‘one-off pension investments’, ‘pension loans’ and upfront cash.
Unfortunately, the increased reliance on the internet for doing business and advances in digital communications mean these kinds of scams are becoming more common and harder to identify.
The relaxation of pension rules that came into force in April 2015 has enabled schemers and fraudsters to inundate the marketplace. It has been reported frequently that pension scams are on the increase in the UK, despite significant efforts from the industry to mitigate the issue.
What constitutes a pension scam?
There are different types of pension scam, but they can all lead to you losing a lifetime’s worth of savings in a moment. Under the pension freedom rules, you have more choice about how you can access your pension pot than in the past. Fraudsters take advantage of these rules by trying to persuade people to cash in their pension and hand the money to them to invest.
Watch out particularly for people contacting you out of the blue or adverts claiming to offer free pension reviews or no-obligation consultations.
Unscrupulous firms or individuals may also:
- Promise extra tax savings and/or very high returns from overseas investments or new or ‘creative’ investments
- Claim to know of loopholes that allow you to get more than the usual 25% tax-free cash
- Say they can help you or someone else unlock your pension before age 55
- Encourage you to transfer your pension quickly, and even send documents by courier
Only in very rare cases can a person legally access the money in their pension scheme before the age of 55 (e.g. if the person is in very poor health). Pension scams where companies claim they can help the saver take their pension savings early are known as ‘pension liberation fraud’ or ‘pension loans’. Taking your pension savings early can result in tax charges of more than half the value of the money you take out. Those being targeted are not usually told about the potential tax implications. This is in addition to high charges, typically 20% to 30% for entering into one of these arrangements as well as high-risk investments for the remaining pension savings!
How to spot a pension scam
Some common tell-tale signs indicate a scam:
- Being approached out of the blue over the phone, via text message or in person door-to-door by a person or company you have had no previous dealings with.
- Situations where you aren’t given long to make a decision, or you feel pressured into making one immediately.
- Claims that they can help you or a relative unlock a pension before the age of 55.
- Claims of knowledge about tax loopholes or promises for extra tax savings.
- Companies that only disclose a mobile number and a PO box address on their websites.
- Firms that do not want you to call them back.
Some outfits may be very sophisticated and have convincing websites. Some may imply that they are part of the government-backed Pension Wise service by sneakily including ‘wise’, ‘guidance’ or ‘pension’ in their name. Pension Wise offers impartial and free information and guidance on your pension options. It will never contact you out of the blue to offer you a pension review and it has only one website: www.pensionwise.gov.uk.
Once you’ve transferred your pension or handed over your pension savings, it’s too late. Many victims have lost their entire pension savings. Even if you don’t lose your money, you could be asked to pay a large tax bill on top.
What to do if you think you are being targeted
You should never be rushed into making a decision. Make sure the firm is registered with the Financial Conduct Authority (FCA) to conduct business before you agree to anything. Use the FCA’s online firm check (fca.org.uk/ register) or call the FCA directly.
To be sure it’s the same firm in question, call them back on the switchboard number given on the FCA’s website, not any other number they give you. If you think you have been scammed or that someone has tried to scam you, immediately contact the FCA’s Consumer Helpline on the number mentioned above.
If you do get any calls that you suspect to be scams, you should report them immediately to the relevant authorities. If anything is offered that seems ‘too be good to be true’, it probably is!
