Pension freedoms were introduced in 2015, allowing over-55s to spend or invest their pension as they want. However, in the first year of the relaxed rules the government says that around £19 million was lost to pension fraud – double the figure for the previous year
Fraudsters typically encourage people to withdraw their savings to invest in high-risk investments that fail. Often victims are urged to complete a pension transfer to another scheme and the money is invested via the new pension, but with the same outcome – the investor loses their cash.
Analysis by pension consultancy firm Xafinity in September 2017 found signs of potential fraudulent activity in one in 12 pension transfer requests. The scams are numerous. Here’s what to look out for.
1 Burial plots
Fraudsters are taking advantage of the UK’s booming population and limited land supply to get people to buy burial plots.
Martin Tilley, director of technical services at pension provider Dentons, says ‘marks’ (potential victims) are provided with information that is factually accurate to build trust.
“The way these people operate is they give people a hook, a fact that is correct,” he says. “For instance, Muslims by their faith are buried and not cremated, so people are offered burial plots in areas where there is a high concentration of Muslims.
“The idea being there is limited supply and high demand, so the land will go up in price.” However, Mr Tilley says that “scammers are controlling the market” and the plots are “vastly overpriced”.
2 Off-plan property
Off-plan hotel rooms are a common racket seen by Mr Tilley. He says investors are offered the chance to buy rooms in hotels that are being constructed in holiday destinations such as Cape Verde, with the promise of high returns. However, the rooms are being sold to UK investors at inflated prices.
“You are buying a hotel room for £50,000 in Cape Verde and being offered a 10% return... but you can buy them directly for less than £15,000,” he says.
“The first £10,000 you pay is funding your 10% a year for the first two years, because the hotel hasn’t been built yet. Then you pay 15% commission to whoever is flogging the rooms and another 15% to the intermediary.”
The development may take years to build, and even if it were successful, there would be no guarantee you could sell when you wanted to access your pension.
Bitcoin is big business and news of its soaring value at the end of 2017 (it has since fallen) has made investors susceptible to fraud.
Michelle Cracknell, chief executive of The Pensions Advisory Service (TPAS), says one pensioner moved their money into a new pension believing they were buying the cryptocurrency, but had actually just bought shares in a bitcoin company that subsequently went into voluntary receivership.
As a shareholder they were at the bottom of the pile for payouts on any money recovered, and “to add insult to injury” were then billed by the administrator of the company, saying they owed admin fees.
“When we checked, the trustees of the pension, the administrator and the director of the bitcoin company all had the same surname,” says Ms Cracknell. “It was a family set-up.”
“Scammers use SSAS to get around the stricter Sipps rules”
4 Self-administered pension schemes
Most investors will have heard of self-invested pension schemes (Sipps), but maybe not small self-administered schemes (SSAS). The latter are typically used by businesses to hold assets in a pension, but fraudsters use them to get around stricter Sipp rules on permitted investments.
An investor will be encouraged to move their money into a SSAS, which are not as carefully regulated. As anyone can legally set up a SSAS and demand a transfer of pension funds into it, the original pension provider moves the money across without question. The fraud occurs when the money is transferred and the pension funds are placed into high-risk investments.
“People are told to move their money so they can invest [through a SSAS] and are told that the returns on these dodgy investments are so good that the HMRC does not want [people] to invest in a tax-exempt environment [like a Sipp], so you have to take all your money out [of the Sipp pension and put it into the SSAS],” warns Mr Tilley.
To protect investors, Dentons does not allow investments in some high-risk areas, including hotel rooms, storage pods and land banking, in its SSAS. However, not all providers are so scrupulous.
5 Offshore bonds
It isn’t just dodgy investments that savers need to be alert to, they must ensure the wrapper they are investing in is legitimate.
Mr Tilley says crooks like to dress unregulated investments up in investment wrappers that are regulated to provide investors with peace of mind.
“Some [of these investments] are packaged up as offshore bonds, which are regulated entities,” he says. “The offshore bond may be regulated, but what they put inside the bond is a load of rubbish... like car parking spaces. Putting them in an offshore bond means the investments are dressed up to look legitimate.”
He says although the bond will promise 8% a year, in reality the scammers “run it for two years, pull all the money out and disappear”.
6 Double advisers
Just as important as the investments you are putting your money into is who is advising you to transfer your money.
John Moret, a pension consultant, says investors should watch out if their pension transfer is managed by one adviser and the investments by another.
“Usually you have an unregulated adviser who is promoting a pension transfer, but not authorised to do it. So they get an independent financial adviser (IFA) who is regulated and then that regulated adviser walks away,” he says.
The regulated IFA gets paid to do the transfer and then absolves responsibility for their client. This leaves the unregulated adviser to invest the transferred pension money and the investor without any protection or ability to claim compensation when the investments go bad.
“It’s easy for fraudsters to target people by using LinkedIn”
7 Payment protection insurance
If you have received a payment protection insurance (PPI) refund via a claims management company, be wary of offers to deal with your pension, warns Ms Cracknell.
She says one woman who called TPAS’s advice line had been approached about a transfer by a company which had previously won her PPI compensation.
“She received £200 back on her PPI and then they called her about pension transfers,” explains Ms Cracknell. “The company had already built up trust with the woman because they had delivered pound notes to her.”
Websites of companies running scam transfers often offer other services such as PPI and road accident compensation, which should be red flags if you are approached.
8 Redundancy risk
Con artists are using personal information online to target individuals.
Ms Cracknell says she has seen cases of people being approached for fake pension reviews after they have been made redundant. After a restructuring at a big-name insurance company, a former employee was contacted by scammers. Ms Cracknell adds that it is easy for the fraudsters to target former staff by using the networking site LinkedIn.
“The scammers told the person the employer had asked them to contact them about transferring their pension,” she says. “The fraudsters had a valid reason for calling because the employer was going through a change and a pension review wasn’t beyond the realm of possibility.”
9 Claims management con artists
If being conned into transferring your pension money into a rogue scheme wasn’t bad enough, those who have lost money are now being targeted by claims management companies.
Ms Cracknell says one man who called TPAS had already lost his pension after he was targeted by a claims company.
“He was contacted by a company which said they could get his pension money back,” she says. “He paid them £500 to do it, but it was a scam. The reality is that once that money has been transferred and put into high-risk investments, it’s gone. If the Pensions Regulator and the police cannot get the money back, what makes you think a claims management company can?”
10 Cold calls
Cold calling is pension scammers’ preferred way of operating. Citizens Advice reckons 10.9 million consumers have received unsolicited contact about their pension since April 2015, when pension freedoms were introduced.
The government has announced that legislation to ban cold calling, texting and emailing will be brought in by this month specifically to try to stem the flow of pension scams.
However, Ms Cracknell warns this does not mean pension savers can take their eye off the ball.
“The size of the prize means the scammers will find an alternative route or take the risk and keep cold calling,” she says. “Just because there is a ban, do not assume that every call is a bona fide call.”
What to do if you’ve been scammed
Michelle Cracknell (pictured above), chief executive of The Pensions Advisory Service, says those who have fallen prey to scammers should report the incident to Action Fraud, the UK’s national fraud reporting centre. Although it’s still unlikely they will get their money back, sharing information will help police crack down on fraud.
Fraud victims will undoubtedly be angry, but Ms Cracknell says they need to take action to rebuild their pension fund.
“We will talk to those affected by fraud about what they need to do to get a full state pension record and matching employer pension contributions, because they will have a hole in their pension,” she says. Also be wary of claims management firms that promise to recover your cash. It will be another scam.
To report a scam and/or get a crime reference number, contact Action Fraud on 0300 123 2040 or at Actionfraud.police.uk.
The telltale signs of being conned
New types of fraudulent schemes are emerging all the time as scammers try to stay one step ahead, but there are some common telltale signs that you’re being taken for a ride.
Martin Tilley, director of technical services at Dentons, says if you are contacted about a pension transfer or a too-good-to-be-true investment, it pays to be suspicious. “If it’s not a regulated investment, then take every fact as a lie before they prove it is not,” he says.
“You have to dig, ask questions about the investment, and if they do not want to give answers, they will stop talking to you. For them, it’s a waste of time and they will move on.”
If you are unsure about an investment, TPAS’s Michelle Cracknell says you can do some basic searches, such as seeing whether the company offering the investment is located in the UK. Although she says an offshore location does not automatically mean it’s a scam, regulation and compensation schemes may differ.
She also recommends using the internet to do background research on the directors to see whether they hold numerous directorships in a variety of companies, which could ring alarm bells.
Investors can also call TPAS and run an investment past the organisation before it is too late. “If you are worried and suspicious, give TPAS a call,” says Ms Cracknell.
Contact TPAS on 0300 123 1047 or visit Pensionsadvisoryservice.org.uk.
Michelle McGagh is a personal finance journalist who has written for The Guardian, Citywire, AOL and Money Observer