Since the 2015 pension freedoms, there has been more choice than ever for how Britons can access their retirement benefits. While this is generally welcome, it has been accompanied by increasingly sophisticated pension fraud – and even the financially savvy are being caught out.
Most people see pension scams as deliberate criminal efforts to steal pension funds from their rightful owners. While this is correct, they can also take the form of ‘mis-selling’ from advisers, whereby pension holders are persuaded to transfer retirement benefits into inappropriate and/or high-risk investments that could fail.
Make sure you know how to spot the warning signs and protect your pension benefits without missing out on suitable opportunities.
How common are pension scams?
Almost 3,750 victims reported losing on average £82,000 each to pension scams last year – a total of around £307 million. However, industry insiders estimate that the real figure, including unreported cases, is likely to be much higher.
The Pension Scams Industry Group found around one in eight pension transfers in 2018 was potentially fraudulent – which means approximately £4 billion of UK pension funds are at risk.
Pension transfers present a key opportunity for scammers. ‘Defined benefit’ (‘final salary’) transfers can be particularly lucrative, as some transfer values today are extremely high. And, while expatriates can unlock tax, estate planning and currency benefits by transferring UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS), this is another target area for fraud.
There can be significant advantages in transferring UK pensions – especially if you are resident abroad – but it is crucial to take extreme care and seek regulated, personalised advice before taking any action.
Who is at risk?
If you think you are unlikely to be taken in by a scam, think again. Joint research from the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) discovered almost half of pension holders (42%) could be persuaded by the most common tactics. That means over five million people could potentially become targets.
They also found that people who considered themselves financially savvy were just as likely as others to fall victim. Although people actively looking to boost their retirement income were 60% more vulnerable, anyone considering their pension options could be at risk.
What are the warning signs?
Although pension cold calling was banned by the UK government in January, many scams still start this way. As well as an unsolicited call or text, you could be contacted in person, online or by mail.
Other tell-tale signs include:
• Offers to access to your pension before the age of 55 (‘pension liberation’).
• Unusually high and/or guaranteed returns.
• Time-limited offers and cash incentives (e.g. ‘commission rebates’).
• Exotic investment opportunities – recent examples include storage pods, biofuels and even truffle trees.
Remember: no investment is guaranteed, and once you have signed over your pension, it is too late. You could not only lose your funds, but potentially face a UK tax bill of 55% (plus penalty fees) for breaking the rules.
Also, take note that many unregulated companies offer pension services. Whether they aim to defraud you or not, these are unprotected investments that provide no compensation if things go wrong.
Four key ways to protect yourself
1. Beware of anyone you don’t know contacting you out of the blue for a pension review, whether by phone, email, online, mail, on social media or in person.
2. Thoroughly research who you are dealing with before giving out your details, and certainly before changing your pension arrangements. Check the ScamSmart website – www.fca.org.uk/scamsmart – and the online FCA register to confirm if an adviser is regulated or on any warning lists. You could also look for consumer reviews, ask around your local community and follow up references.
3. Never sign anything under pressure and without fully understanding what you are getting into.
4. Take professional advice. Regardless of whether you remain UK resident or not, use a provider who is authorised and regulated for the conduct of UK pension business by the Financial Conduct Authority.
Securing quality advice
Even with authorised advisers, take care to check for quality. Make sure your pensions adviser carries out a high level of due diligence and communicates clearly about your range of options – and the associated risks – while being transparent about costs. They should take account of your particular needs, objectives, personal circumstances and risk appetite to find a solution that is right for your retirement needs.
For expatriates, it will be beneficial to talk to an adviser with experience of the tax rules in both the UK and Portugal to take advantage of locally compliant, tax-efficient opportunities.
It can only take a moment to lose a lifetime of savings, but with careful planning and quality, expert advice, you can both protect and make the most of what you have for years to come.
This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.
By Dan Henderson
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Dan Henderson, Partner of Blevins Franks, is a highly experienced financial adviser, specialising in retirement, investment and succession planning. He holds the Diploma for Financial Advisers and advanced CII qualifications in pensions and investment planning.