Be on the lookout for pension fraud

In some cases, their money may have been effectively scammed away at the time the investment was made.

Fraudsters are essentially opportunists and the deregulation of pension fund investments has created an opportunity for them to launch fraudulent schemes, with the sole aim of siphoning off funds that individuals may have extracted from safe schemes.

No-one can yet know the scale of this fraud because inherent within these bogus schemes is the likely message that they are long-term investments, maturing in several years’ time and not available until then.

The fraudsters involved have become adept at fobbing off investors and maintaining the facade by issuing annual statements, providing information about how their investment funds are performing and, if it is notionally a pension product, giving their projected value at the point of retirement.

Inherent within these bogus schemes is the likely message that they are long-term investments

Those affected by such fraud may only find out that something is wrong when they reach retirement and it seems likely that many fraudulent schemes are still running and may not be exposed for years.

Often tied into a self-invested personal pension scheme, a common trait of these fraudulent schemes is that they are unlikely to have the required regulatory approvals – a fact that could be picked up by some relatively simple due diligence.

Chasing after stolen funds is always a difficult, costly and time-consuming task.

Taking precautions

Rather than face that prospect, individuals and their advisers should take sensible precautions.

From the start, investors should be wary if they are contacted out of the blue about an opportunity to transfer their existing pension, often sweetened by talk of access to a cash lump sum and the promise of strong returns.

They should question whether they really want to risk a secure pension arrangement on the promise of unearned riches and query whether it is too good to be true when compared with normal market investment returns.

They should also perform internet research to check the identity of the provider and the validity of published information or reviews.

If a claim is made that a company or individuals are authorised to give investment advice, the FCA register will quickly indicate if this is true or not and whether any disciplinary action has been taken against them. 

Fraudulent schemes often purport to show they are supported by a range of respectable-looking professional companies, acting as advisers.

However, on closer inspection these companies may share common addresses, or the same named directors, suggesting they are not independent of each other.

Investors and their advisers should also be on the lookout for schemes that deliberately set out to tweak their environmental or social conscience.

A recent trend has been for fraudsters to devise schemes that offer some environmental or community-focused benefit by investing in renewable energy sources, eco-friendly housing in developing economies or sustainable timber projects.

If the investment is in an exotic-sounding location and involves investment in a start-up business seeking funds for a specific long-term project, people should be especially wary and carry out proper due diligence on the scheme.

Advisers themselves also cannot afford to be complacent and if pension investment schemes seem too good to be true or are promising to save the planet or support the creation of sustainable, third-world communities, they should apply a reasonable degree of professional scepticism.

Gavin Cunningham is a partner and head of forensic services at Menzies LLP