Pension scams are on the rise. The number of over-55s being targeted by cold callers and unregulated investment firms has jumped, according to the Financial Conduct Authority (FCA). In a recent survey, it found 32 per cent of the over-55s polled had seen a sharp rise in the volume of unsolicited calls offering investments over the past year.
Most at risk, previous FCA research has shown, are people aged over 65 who have more than £10,000 savings - particularly those living in London, the Home Counties and the south-east.
"The FCA's figures are shocking and highlight the risks that come with pension freedoms. Many pension scams may appear very convincing," says Penny Cogher, pensions partner at Irwin Mitchell.
"Fraudsters cynically target the over-65s with savings over £10,000 - this group is 3.5 times more likely to fall victim to an investment fraud. They tend to be the most vulnerable in our society and also will have the most to lose."
But despite most people feeling confident they can spot fraudsters' tricks, this is often not the case, according to a report published by Citizens Advice in March.
It found nine out of 10 people miss common warning signs of a pensions scam - such as unusually high investment returns, cold calling and offers of free financial advice. Although three in four people felt confident they could identify a pension scam, just 12 per cent were actually able to do so when a scam was presented to them.
Staying one step ahead of the fraudsters is becoming harder as scams are getting more sophisticated, believes Jackie Spencer, retirement and pensions strategy manager at the Money Advice Service.
"Websites can come up and down very quickly and they look very sophisticated," she says.
Kate Smith, head of pensions at Aegon, says her firm has witnessed a doubling of pension scams in the past six months, and that fraudulent firms are targeting more and more sophisticated investors. "Scams are targeting people seeking higher investment returns, who often think they're being offered a fantastic opportunity," she says. "But if it looks too good to be true it probably is, because we know in today's world you don't get these fantastic returns - or at least very rarely.
"What you're actually going into if you accept the offer is highly risky, non-regulated investments."
Pension scam tactics
So what are the warning signs you should watch out for?
Ms Smith says: "Fraudsters are using different tactics to get hold of your pensions, often starting with a cold call. Common tactics include offering to 'liberate' your pension by transferring it away from a genuine pension scheme to one that allows you to cash in your pension before age 55. Another common tactic is to move your pension overseas, commonly to Malta or Hong Kong, promising that doing so can double your money in 10 years' time.
"Scammers fail to mention that accessing your pension before age 55 breaks the tax laws, risking a 55 per cent tax penalty and that transferring your pension overseas, when there is no intention to live abroad, can also lead to a similar tax penalty. In the worst case scenario people risk losing all their pension savings and face paying a hefty tax bill, leaving them with nothing to live on in retirement."
Although cold calling is the most typical form of unsolicited contact, people should also be on their guard against unsolicited emails and texts, she adds.
You should also watch out for some tell-tale language scammers might use, says David Smith, director of financial planning at Tilney Bestinvest. These include lines like a 'once-in-a-lifetime opportunity', 'guaranteed returns', 'completely tax-free' or 'legal loophole'.
He says: "Such terms will rarely, if ever, be used by an FCA-approved person and certainly not in an opening conversation."
He also suggests people steer clear of anyone ringing out of the blue to offer 'residential property investment opportunities', 'offshore opportunities,' or upfront cash or loans on pensions.
"While your funds are held within a pension, it is explicitly forbidden to invest in residential property and anyone falling foul will suffer severe financial penalties. In order to make such investments, you would have to physically withdraw your capital completely from the pension scheme prior to investment - an action that could cost thousands of pounds in tax," he says.
"An immediate alarm should sound as soon as you are offered an 'offshore opportunity'. Any schemes that involve moving your funds abroad have a high likelihood of being scams. They will typically be unregulated investments, which have little to no financial protection from the Financial Services Compensation Scheme (FSCS). Indeed, any offshore investments that go wrong can be very difficult to recover."
Hugh Creasy, a pension schemes' actuary at Xafinity, says you should also be highly suspicious of anyone who tries to pressurise you into making a quick decision on transferring your pension pot. His firm has said it is currently seeing signs of potential scam activity in about 11 per cent of the pension transfer requests they receive. The red flags they look out for include the individual having been cold called, high pressure from the firm or individual to access funds quickly, and overseas transfers. Once suspicions are raised the firm will contact the individual to try to raise the alarm.
Mr Creasy says individuals also need to be aware that scammers are highly organised and share information about people they've defrauded with each other.
He says: "Some fraudsters pass around what they call a 'suckers list'. So if somebody has been scammed for one thing, they'll go on this list which is circulated to other scammers who then know to pick on them again because they're an easy touch. This is why pensions trustees also need to put safeguards in place to help people [from being conned]."
What can you do to protect yourself?
The best way to protect yourself is avoid cold callers in the first place. Mr Creasy also suggests only using financial advisers that you or someone you trust has had good experience with, and asking your employer for help if you want to transfer your pension.
The FCA has a number of suggestions on how to avoid scams. The most important things to do are:
■ reject cold calls
■ check if a firm is FCA authorised or registered
■ search the FCA list of unauthorised firms.
You can find out whether a firm is registered with or authorised by the FCA by using the Firm Check Service on its consumer website or calling their consumer helpline on 0800 111 6768. Go to www.scamsmart.fca.org.uk for more details
Victims of pensions fraud can appeal to the Financial Ombudsman Service (FOS) for help.
| How to avoid losing your pension to scams and fraudsters 1. Scams don't look like scams. Scams look and sound legitimate, which is why people are hoodwinked. They often have very professional looking websites and literature. Before you do anything with your pensions money check that the company in question is registered with the Financial Conduct Authority (FCA). 2. Too good to be true could be too bad for you. If an investment offers the opportunity of a lifetime, it could be a scam and hit you hard if you fall for it. 3. You've been googled. Legitimate investment companies are very unlikely to cold call. The people that run pension scams are clever and may have been able to get hold of some of your personal details, as well as details about your local area and interests. Don't let their knowledge and friendliness take you off guard. 4. Don't rush to be ripped off. Genuine advisers will never rush you to make a decision. Offers that are only available for a 'limited time' are likely to be too good to be true. Again, check these with the FCA. 5. Facts not fraud. Pensions can normally only be accessed after you reach age 55 unless you are in seriously ill health. In normal circumstances, if someone promises to release your pension early it could be a scam. Make sure you know the facts to avoid the fraudsters. 6. Check it out. If you are unsure always contact your employer if it relates to your pension at work, or The Pensions Advisory Service (TPAS) or Pension Wise for any other kind of pension. 7. Help stop the scams. If you think you are being scammed contact TPAS immediately. As well as helping you, they may be able to prevent others falling for the same scam. |
