What is a pension scam?
Millions of people fall victim to scams every year and scammers’ tactics are constantly changing to try and get hold of people’s pension pots and avoid the regulator.
The potential market is huge and unscrupulous companies are taking advantage of the difficult economic climate to entice people into transferring their pension to schemes with seemingly excellent investment returns or; suggesting cash can be immediately accessed when legislation would not permit this without tax consequences.
It is understandable why many people may find things they are offered attractive, but they often aren’t told of the consequences, or are told that the consequences don’t apply to them.
What are pension scams?
They come in various disguises but they all aim to get hold of a person’s pension savings.
Typical tactics to lure people include:
Even with the new flexibilities, a member cannot access their pension as cash until they reach age 55, unless they are in ill-health.
A common scam is where members under age 55 transfer benefits to an arrangement where usually they take some of the benefit as cash immediately, i.e. below the age 55.
Pension loans or cash incentives entice people into transferring their benefits but they are either not informed, or are misled, about key consequences e.g. tax consequences, fees involved or how the remainder of their pension savings are being invested. There is a focus on members generally being misled into risky transfers even where cash incentives may not be offered e.g. unregulated schemes offering high rates of "guaranteed returns" and misleading members about the value of current benefits.
You should note that this is not the same as "Pension Unlocking”. This is where a member aged over 55 can release 25% of their total fund as a tax free cash sum (PCLS).
Pension Unlocking means a member will have less available to provide the rest of their retirement benefits in retirement so it is only suitable for certain people in certain circumstances.
What’s the catch?
A member can only use their pension scheme once so if they liberate it early, there may be nothing left when they retire. The risks include:
Warning Signs
Some of the warning signs that scammers may be involved are below to help you question the member and find out a bit more:
Unsolicited text messages or calls – how did the member get to hear about the company to which they wish to transfer?
These texts or calls are often the first point of contact to attract people, however it is unlikely that reputable companies would request personal information this way. In the 2016 Autumn Statement, the Chancellor announced a ban on cold calling concerning pensions advice, although at the time of writing this ban has yet to be implemented.
Poor credit rating – information about Bankruptcy and County Court Judgement is in the public domain. Companies use this information to target vulnerable people who are likely to need short-term cash.
Loans or cash bonus – has the member been offered these as an incentive to transfer?
Transfer overseas – promises of high returns if the money is invested in overseas companies - the investment may not exist at all and often when money is transferred abroad, it is harder to trace.
Constant chasers – why is the member in such a hurry to complete the transfer?
It could be because the scammers are in a hurry as they are concerned about being caught by the authorities!
Legal loopholes – the member may have been told that the transfer can take place due to a legal loophole. Such a loophole does not exist, the member needs to understand the financial impact of proceeding.
High investment returns – is the member being promised investment returns such as over 8%?
Single investment – a financial adviser would normally suggest a spread of investments.
