Scam Watch: beware scam pension sites
Each year an estimated £600 million is stolen from the £2 trillion held in occupational pension funds by fiscally smart, white collar fraudsters. And following the introduction of the pension freedoms in April this year - which permit those over 55 to take your whole pension as cash - experts fear this is a number that is only set to rise.
Research by Portal Financial has found that the over-55s are increasingly being targeted by fraudsters, with 39% noticing an increase in the number of pensions-related calls around the time the new rules came into force. More worrying still, a sizeable 40% of those old enough to cash in their pensions were not able to tell the difference between a scam and a legitimate offer from a regulated company.
Jamie Smith-Thompson, managing director of Portal Financial, says: "Now that people have greater access to their pension funds, the risk of scams is a growing concern. It is worrying that more than a year after the announcement of the pension reforms, 45% of people still don't feel well informed about them.
"It is especially alarming that over half of the respondents in our survey felt they had been contacted by a company running a scam, yet 40% are not confident they can tell the difference between a genuine offer and a scam.
Worse, almost a quarter of people would not know where to get accurate financial advice on the reforms. Keeping people safe from losing their savings to a scam needs to be a priority, and it's clear that regulated advice has never been so important."
So with this is mind, what can you do to stop the crooks from raiding your retirement nest only to feather their own?
If it sounds too good to be true…
There is a line in that old comedy film Sons of the Desert where Oliver Hardy says to Stan Laurel: "It's too far-fetched not to be the truth." This quip may sum up what the adventurous fraudster hopes to instil in their victim.
They want to convince you they have a deal you'd be crazy to pass over - especially when the alternatives are impenetrably complex or just plain dull. But, as with any scam, if the offer sounds too good to be true, it more than likely is. So what are the lies pension scammers are most likely to tell you?
The lie: You can access your pension before you're 55.
The truth: You can't, unless you are seriously ill and have a much-limited life expectancy. So-called 'pension liberation' schemes are unlikely to be in your best interest and could leave your with a significant tax bill. Even worse, you may even be participating in a fraud.
The lie: You can take more than 25% of your pension tax free.
Specialist accountants can use legal loopholes that let you to take more than 25% of your pension fund tax-free cash.
The truth: Forget it, you can't. Whatever 'specialist accountants' might claim, the maximum you can take tax-free is 25% - either as a lump sum or series of withdrawals. The only exception is those savers whose income is below their personal allowance and are therefore not liable to pay income tax.
The lie: You can withdraw your entire pension and invest it overseas, giving you a major pay-off for your investment, paid into an offshore tax-exempt account.
The truth: At the very best, you won't get the returns you are promised; at worst, your cash will disappear into the sunset, never to be seen again.
How you could be targeted
It used to be the case that fraudsters would target pension savers at or approaching their retirement age. However, there are already early indications that the con artists are adapting the way they operate so they can snare people of all ages.
Yes, they still bombard people with texts and emails offering spurious pension loans and free pension reviews with the aim being to get a response from someone who can then be coerced into handing over their life savings. However, they are being less choosy about who they con.
Margaret Snowdon, director at pension consultancy JLT Employee Benefits, led the drafting of a code of conduct for professionals on pension fraud. She told us: "The current trend sees a scattergun approach to sending out texts, in particular, encouraging people to get advice on what their pension options are, which the person texting is able to provide.
"They don't discriminate, firing off texts to people of all ages. Their intention is to secure sales, which in this case means getting hold of an individual's money or their pension. They don't care which it is."
So what do you need to watch out for? There are several tried and tested approaches that the rip-off merchants will apply. If any strike you as familiar, you may have been targeted by a fraudster.
This scam involves dodgy advisers luring you with offers to invest in schemes that promise incredible returns. Typically, they require you to withdraw all your cash from a pension fund and invest it in the new scheme. They may allow you to access some of your fund via a loan.
What the adviser won't tell you is that you could face a hefty tax bill if HMRC considers it an unauthorised payment – for example, if you are under the age of 55. They will be equally reticent to tell you about their fees, which can amount to 30% of the total. One snap decision can swiftly wipe out a lifetime's effort to provide for your retirement.
Unwanted tax bill
If you are unfortunate enough to fall foul of a pension scam, your troubles don't necessarily end when your account is drained. Should you take money from your pension before you reach age 55, you could be subject to a tax charge at a rate of up to 55%, which could prove debilitating. This unexpected fee could be enough to bankrupt you.
Eggs in one basket
Many scams see pension holders invited to transfer their holdings into single-member occupational schemes. This is to speed up the process of getting a hold on your cash by keeping the deal as simple as possible. It also means you make one payment, typically via a money transfer service, which is far easier for the fraudsters to use without fear of being traced. It's worth remembering that reputable financial advisers recommend diversification of funds into different investments to spread the risk.
No time to think
When opportunity knocks, it's tempting to seize it rather than delay and risk being left behind. However, this is a bad policy to follow when it comes to such big stakes as your pension fund. Andy Webb, who runs consumer website becleverwithyourcash.co.uk, told us: "Pension fraudsters will often contact you out of the blue. If they're pushing you to act fast, it's a sign they aren't legitimate."
This is sound advice if experiences of fraud are anything to go by. Fraudsters recognise that many of us will want time to think if presented with an opportunity that seems almost too good to be true. For this reason, they'll do what they can to prevent their victims from having any breathing space and will fall back on tactics such as stating the deal they are offering has a short expiry date, or is a "one-off investment opportunity".
Typically, the scammers will seek to sweeten the deal by claiming their scheme offers 'guaranteed' returns of 8% or more, when, of course, this is rubbish – no one can guarantee specific rates of return. They may explain away the incredible opportunity as a legal loophole they have discovered and are more than happy to help you exploit this loophole.
In all cases, you will be reminded that, as you're being done a favour, you must sign on the dotted line immediately and not tell anyone about the offer – that's because other people may spot the con and warn you off. Once the deal has been done, the chances are you'll be asked to transfer the required cash to an offshore account or via a money transfer system to what will inevitably be an untraceable account. In short, your cash will disappear.
If you are presented with a seemingly fabulous opportunity to turn your pension fund into a pot of gold, take time to consider the pros and cons, as you would if you were choosing a new car, wallpaper or a holiday.
Jackie Spencer, pension expert at the Money Advice Service, said: "The most important thing for consumers to remember is to take time to make a decision about what to do with their hard-earned pension money. They should thoroughly research the options available to them and speak to friends, family or a professional adviser before making a decision."
Pension providers have recently told Moneywise that they are facing requests from scammers to unlock individuals' pensions. Aegon, for example, said it had received three requests from identity thieves to access the cash in victims' pensions in a single month.
Members of the Moneywise team have also received many emails from scammers claiming they can perform a free review of their pension, as well as an email promising to "unlock your pension cash, no matter how old you are". We have also had an email from a marketing company that is acting as an introducer for a panel of independent financial advisers and "carefully selected pension experts" – but it admits that not all are regulated by the Financial Conduct Authority.
If you or someone you know has been contacted by a firm offering you a way to release your pension funds, perhaps promising tremendous returns for your investment, take care. It makes sense to contact the Financial Conduct Authority to check that the firm is legitimate before responding. You can check whether an adviser or firm is approved and regulated by using the fca.org.uk register or by calling 0300 500 8082.
If you suspect you might have already been targeted by fraudsters, you should report your experience to Action Fraud on 0300 123 2040. Be sure to make a record of any contact details you have; this will help the authorities with their investigations.
You can also contact Moneywise if you believe a fraudster has zoned in on you or someone you know.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.