‘Beware of pension humbugs who will mince you’

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‘Beware of pension humbugs who will mince you’

Pensioners must be alert as the budding defrauders, whose numbers have proliferated since the introduction of the pension reforms, will be out in force, David Smith has warned.

The director of financial planning at Tilney Bestinvest said that five months on, up to £9m of pensioners’ monies had been stolen, which he warned could be artificially low, as many will not have know their money had been stolen – yet.

“Ultimately, nothing sums up the situation better than the old adage; if it sounds too good to be true, then it probably is. For good quality advice on the options available and a suitable path forward you should always meet with a regulated adviser. Use the FCA register to find an approved adviser, or get in touch with Pension Wise for guidance,” he said.

He said the tactics they use, to encourage people to transfer their pension savings to them, were constantly changing. It included offering free pension reviews or health checks and promises of better returns on their savings, pension loans, upfront cash or other tempting propositions.

Some of signs David Smith highlighted for people to look out for
The Cold Caller

Very rarely, if ever, will an FCA-approved person contact you out of the blue ‘with an opportunity’. Invariably, taglines which require you to act now or sign up immediately are clear warnings of a scam, designed simply to pressurise someone into making a rash decision.

Key Phrases

‘Once in a lifetime opportunity’, ‘Guaranteed Returns’, ‘Completely Tax Free’, ‘Legal Loophole’:

We have all been quoted lines like this before but if any such terms are used by a ‘pensions’ specialist’ ringing you out of the blue - hang-up immediately.

Such terms will rarely, if ever, be used by an FCA-approved person and certainly not in an opening conversation. Pensions are complicated and multi-faceted: It’s therefore nigh on impossible to provide any form of worthwhile guidance on a pension until ‘hard facts’ have been obtained in writing from the pension provider.

Offshore Opportunities

An immediate alarm should sound as soon as you are offered an ‘offshore opportunity’. Any schemes which involve moving your funds abroad have a high likelihood of being scams. They will typically be unregulated investments, which have little to no financial protection from the Financial Services Compensation Scheme (FSCS). Indeed, any offshore investments that go wrong can be very difficult to recover.

Residential Property Investment Opportunity

Whilst your funds are held within a pension, it is explicitly forbidden to invest in residential property and anyone falling foul will suffer severe financial penalties. In order to make such investments, you would have to physically withdraw your capital completely from the pension scheme prior to investment – an action which could cost thousands of pounds in tax.

Early Access

The new freedoms have offered greater access to pension funds than ever before. You must however, be over 55 years old to draw from your pension. Only if you are in certain professions or in cases of extreme ill health can you access your pension funds early. If neither applies to you, you’d better set your alarm for your 55th birthday…

Upfront Cash or Loans

Individuals are unable to obtain loans against their pension funds and any such arrangements would be classified as ‘unauthorised payments’ and bear large fines.

Last month the Pensions Administration Standards Association called on the industry to raise standards to protect pension savers from fraud and avoid putting the nation’s lifetime savings ar risk.

The organisation said failure to raise standards in line with other industries could, effectively, put the retirement savings of millions at risk.

Margaret Snowdon, chair of Pasa, said: “The pensions freedoms gave the industry an opportunity to refresh and revitalise pension savings, but we also carry a greater risk if we fail to better safeguard the money entrusted to us.”

According to data put out last month by Portus Consulting, one in seven over-55s were targeted by pension fraudsters since the freedoms were introduced.

According to their research, 14 per cent of working over-55s have been contacted by suspicious companies, mainly offering a free pension review, while 27 per cent of those targeted saying they were offered investment schemes with unusually high returns. Others were offered suggested investment opportunities which were not clearly explained.

Between April and August 2015, £9m was lost to pension fraud, approximately twice as much as during the same period in 2014.

The research revealed this could be only the tip of the iceberg, as many people do not report the fact that they have been targeted.

Pensions minister Ros Altmann has previously warned people to be aware of scams.

In recent months the Conservative peer has urged people to report any potential fraudsters to Action Fraud or Pensions Advisory Service.

She said: “The criminals behind this illegal activity often lay a sophisticated trap complete with glossy brochures and professional websites that make them look highly credible.

“Their aim is to catch you off your guard so they can steal your hard-earned savings. Scammers wreck people’s lives; it really is as plain and simple as that.”

A multi-agency taskforce has been established called Project Bloom, made up of the DWP, Serious Fraud Office, FCA and National Crime Agency.

In March, an industry standard code of practice was launched to empower pension scheme members and target unscrupulous activity.

The Pensions Regulator also refreshed its scorpion campaign to alert savers and scheme trustees to the possible risks.

Produced in partnership with regulators and government, it provides advice on how to spot a scam, and what to do if contacted by a suspect entity.