Ever been offered an investment opportunity in burial plots, Carribean hotel rooms or a guaranteed return from Uruguayan soya beans? If you have, chances are someone’s tried to scam you with these and a host of other tricks used to try to part you from your pension.
According to Michelle Cracknell, chief executive of The Pensions Advisory Service (TPAS), scams cover a broad spectrum from misselling and incompetence through to out-and-out theft. “Scams range from the sale of inappropriate or unregulated investments to fraud and theft,” she says. “They can be by phone, email, text, letter and sometimes even in person and examples include high-risk investments and offers of a free pension review to hook you in.”
Whichever method the criminals use, it is a big problem. Figures from The Pensions Regulator estimate that around £500 million is stolen from our pensions every year, with this figure potentially even higher as some victims are too embarrassed to report the loss.
It’s a common problem too. Research by Citizens Advice found that as many as 10.9 million people are targeted a year and the Money Advice Service estimates that eight scam calls are made every second in the UK.
Andrew Pennie, marketing director at Intelligent Pensions, says the chances of being targeted are very high. “Pension data is readily available,” he explains. “I’ve even seen reports of pension details on sale for as little as 4p per person. It’s a small investment for a fraudster if it enables them to con someone out of a pension worth several hundred thousand pounds.”
As well as the potential to make big bucks, the pension rules also make it alarmingly easy for scams to take place. “The world of pensions has always attracted its fair share of scams, not least because of the large amounts of money involved, but the new pension freedoms have acted as something of a magnet to the scammers,” says Steve Webb, director of policy at Royal London.
Having the freedom to take as much money as you like out of your pension once you reach 55 is especially appealing to fraudsters, who target people with promises of get-rich-quick investments.
Martin Tilley, director of pension technical services at Dentons Pension Management, says the fraudsters can be very convincing: “The investments might not be what they say they are but there will often be an element of truth in the sales patter,” he explains. “If someone’s selling a burial plot investment, they might talk about it being in a Muslim area where space is at a premium because cremation isn’t allowed. Or they’ll talk about how 70% of pension funds are underperforming. It’s very easy for even the most sophisticated investor to be duped.”
Nick Wylie, managing director of Allied Financial Services, says this is exactly what happened to one of his clients. “He was approached in a mosque with an investment with a guaranteed return of 8%. They even sent someone from Blackburn down to Birmingham so he could sign the paperwork,” he explains.
“He showed me the details, which revealed that, as well as not being authorised by the Financial Conduct Authority (FCA), it was a high-risk investment in Uruguayan soya bean. He was lucky as there was a cooling-off period, so he was able to cancel.”
Scammers can also come after your pension before you reach 55. As well as tempting you with off-thescale investment returns, often requiring a transfer to a self-invested personal pension (Sipp) to access, pension liberation scams have been around for a few years.
With these, the con artist gets you to transfer your pension into a small self-administered scheme (SSAS) or similar vehicle so you can access your money early. You do get some cash but they’ll also take a significant slice of your savings as a fee, leaving you to swallow a chunky 55% tax bill when HMRC catches up with you.
Ms Cracknell says this is a common trick. As an example, TPAS had a call from someone who had been contacted by a pensions adviser claiming to be from the government.
“The adviser told her she could take her pension early providing she transferred it into an overseas pension company. She was keen to do this as she was in poor health and needed the money, but she can’t access her pension now and the advisers are under investigation,” she explains.
Scammers won’t always leave you alone once they have your money. Earmarked as a ‘soft target’, you can end up on so-called suckers lists, where you may be lined up for a secondary scam.
TPAS was contacted by someone who had been tricked into investing their pension in alternative investments with a firm that had subsequently gone bust. Unable to get their money, another company approached them to help them get the money back for a fee, with that firm also disappearing.
“When someone discovers they’ve been scammed, they’re often desperate to resolve the situation,” explains Ms Cracknell. “Unfortunately, this can lead to double scams where they are approached by claims management firms who appear to have knowledge of the company that carried out the scam. They’ll offer a claims service for a fee of 25%.”
Unfortunately, although these examples from TPAS give an idea of the types of scams doing the rounds, you still need to be careful. “Scams evolve like viruses,” says Mr Tilley. “Once the public is aware of a scam, the fraudsters will find another way to trick people out of their money. With any offer, it’s sensible to take a step back and consider whether it’s genuine.”
Although the scammers can be incredibly convincing, there are some warning signs. “If it sounds too good to be true, it’s probably a scam,” says Mr Pennie. “Look out for anything that offers a high guaranteed return, is in overseas assets such as hotels, or is in something illiquid such as car parks and carbon credits. Even if they’re genuine, they’re high risk and probably not the right place for your pension.”
Another indicator that it might be a scam is that the offers come completely out of the blue. Even if they sound as if they know you or say they’re from the government, no regulated adviser or government body would contact you in this way.
The flakiness of these investments, and the individuals selling them, also means they won’t be approved by the FCA. Often FCA registration details won’t be included on the literature but Mr Wylie advises caution even if they are. “Always check on the FCA register, which is available online,” he says. “It’s also worth looking at the FCA ScamSmart website (see box right), as this has a warning list of known scams.”
Beat the scammers
If you think you’re being targeted by a scammer, Alistair McQueen, pensions policy manager at Aviva, has some simple advice. “Hang up, tear it up or delete the email,” he says. “If you do take a call, don’t let yourself be rushed into making any decisions. You can always run it past your independent financial adviser (IFA), pension provider or an organisation such as TPAS or Pension Wise.”
Similarly if you think someone may have tricked you out of your money, get help as soon as possible. Report it to Action Fraud, the UK’s national fraud and cyber crime reporting centre, and speak to your pension provider, who may be able to stop a transfer.
Given the scale of the problem, steps are being taken to stop the scammers. Pension companies and advisers will do their bit to help where they can, with one company, Phoenix, recently reporting that it had prevented £30 million of potentially fraudulent pension transfers since 2013.
Mr Tilley says he also looks out for potential scams, adding that his suspicions were raised recently when someone came directly to his pension firm rather than through an IFA.
“He was a sophisticated investor with £200,000 in a self-invested personal pension (Sipp) as well as a company pension. He’d been brainwashed into believing that the burial plot investment he was being offered was worth pursuing. We outlined our concerns and refused to open a Sipp for him.”
The government is seeking ways to restrict scam activities. Alongside education campaigns such as the FCA’s ScamSmart and The Pension Regulator’s Scorpion, a consultation about measures to stop scammers ended in February. The proposals include banning cold calls; giving more powers to pension companies to block suspicious transfers; and making it harder for scammers to set up fraudulent pension schemes.
Mr McQueen welcomes the move, but warns that fraudsters could still find ways to operate, setting up call centres outside the UK and the government’s jurisdiction. “The government’s proposals should lead to improvements, but always be on your guard,” he says. “It’s your pension, protect it.”
Five signs it’s a scam
1. High returns – investments, especially those in unusual assets such as diamonds, bamboo and parking spaces, that sound too good to be true are exactly that. Also steer clear of anything offering a guarantee: in today’s ultra-low interest rate environment, it’s not possible to guarantee anything more than a very meagre return.
2. Unexpected – they might say you’ve replied to an email or already received details, but if the call, email or text comes out of the blue, it is likely to be a scam.
3. Free review – no regulated adviser, pension provider or government agency will contact you to offer you a free review. Even if they have your pension details, ignore them.
4. Pressure – scammers want you to sign up before you get suspicious, so be wary if someone is rushing you into making a decision. Common tactics include bonuses and discounts if you sign up on the day.
5. Unauthorised – dealing with a firm that is authorised by the FCA gives you the reassurance that they’re covered by the Financial Ombudsman Service and the Financial Services Compensation Scheme. Check the FCA register (see box on page 47) and avoid any firm or individual that isn’t listed.
“When I realised it was a scam, I felt so foolish”
When someone at his local builders merchants recommended he speak to his financial adviser brother-in-law about an investment opportunity, 55 year-old Jonathan Green thought he could trust the advice. “I’d been given bad pension transfer advice before, so I really wanted to make the most of the £65,000 I had left,” he said.
The landscape gardener from Wigan arranged to meet the brother-in-law. “The investment was in a hotel complex in St Vincent,” Jonathan explains. “All I had to do was transfer my pension into a Sipp and I’d receive huge returns for the rest of my life.”
To show just how special the investment was, Jonathan and his partner were invited, with other investors and advisers, to attend a presentation in a hotel in Manchester. “We were given glossy brochures; it really made the whole thing sound genuine.”
Daily phone calls followed in a bid to sign him up. “He wanted me to buy off-plan, but when he saw I wasn’t keen he offered me an opportunity to invest in a completed property that was a distressed sale. It seemed fine, and he even lent me the money to pay the deposit, so I transferred my pension.”
Within days of the transfer, Jonathan received a call from his own financial adviser . “When I told him what I’d done, there was a moment of silence as it dawned on us what had happened. I hadn’t thought to ask him, but he did a bit of investigating and confirmed our fears that it was a scam. I felt so foolish.”
Acting quickly, Jonathan contacted the Financial Conduct Authority who put him in touch with the police and the Financial Services Compensation Scheme. They confirmed that he would be entitled to some compensation.
“I’ve received about £50,000 but this is about £25,000 to £30,000 down on where I would have been if I hadn’t touched my pension,” he says. “The administrators are dealing with the hotel complex so I might get some money back, but it’s unlikely to be much. It’s been a complete nightmare.”
FCA ScamSmart: Scamsmart.fca.org.uk
FCA Register: Register.fca.org.uk
TPAS: 0300 123 1047; Pensions advisoryservice.org.uk
Pension Wise: 0800 138 3944; Pensionwise.gov.uk
The Pension Regulator: Thepensionsregulator.gov. uk/pension-scams