The Pensions Regulator is doing sterling work with its Scorpion campaign which aims to raise awareness about the people out there with designs on your hard-saved pension money. However, the fact my colleague is still delivering a largely unchanged message suggests the pensions industry still have some way to go in helping people spot scammers.
Whilst a lot of things haven’t changed in the last three years, the nature of the scams we are seeing has evolved. Initially scams focused on passing money to pension scheme members before they were actually eligible under the law to access their pension (that is, “Pension Liberation”). Recent cases have seen a focus on channeling members’ pension pots into, at best inappropriate, in the middle speculative and high risk, and at worst downright fraudulent investments.
‘Pension Liberation schemes claimed to have found a “loophole” allowing you to access your pension fund before 55, and either claimed you could avoid the tax charges, or didn’t mention tax charges applied.
As a general rule, you cannot access money saved in your pension fund before reaching the age of 55 except in very limited circumstances, without incurring very significant tax penalties.
There is, of course, no loophole. There are some cases where scammers didn’t even look for or suggest a loophole, they just offered to liberate your pension.
By the time a member has taken some money, paid extortionate fees of up to 30 per cent or more of a member’s fund, paid the penal tax charges and had their remaining pension money invested in high risk, dubious investments they often find their pension pots have completely disappeared. For the unluckiest they might even end up owing more in tax than they actually received.
Avoiding the scammers is even more important given the publicity surrounding the new Pension Freedoms.
The name itself was a risk, as it is understandable that people will confuse Liberation scams with the Freedom reforms.
Be in no doubt, the scammers are out there and they know many people availing of the recent rule changes will have significant amounts of money to invest, and they have been planning how they can get their hands on those funds.
One statistic worth looking at to reinforce the potential risk of scammers is the report from Action Fraud demonstrating that in May, the first month following the new Pension Freedoms becoming available, members of the public reported losses of £4.7m compared to £1.4m in April and £932,000 in March.
It is not possible to say this is a direct result of pensioners availing themselves of the freedoms being defrauded, but the fact that the amount of reported fraud has tripled in the space of a month is staggering.
Spotting a scam
The first rule of spotting a pension scam is the oldest rule for spotting any sort of a financial scam – if something sounds too good to be true then that’s probably because it is.
That said, scammers are plausible, well-organised and have lots of experience in separating individuals from their money. It’s understandable that, if you don’t spend a lot of time immersed in the detail of finance and pensions, it may not be obvious that the scheme you are being offered is a scam.
So what are the warning signs?
In August this year the Pensions Regulator ran the first ever “Scams Awareness Week”, highlighting a number of warning signs to help individuals beat the scammers;
- A cold call, text message, website pop-up or someone coming to your door offering you a ‘free pension review’, ‘one-off investment opportunity’ or ‘legal loophole’
- Convincing marketing materials that promise you returns of over 8 per cent on your investment
- Paperwork delivered to your door by courier that requires immediate signature
- A proposal to put your money in a single investment. In most circumstances, financial advisers will suggest diversification of assets
- They may claim that you can access your pension before age 55
- Transfers of your money overseas
Pensions minister Baroness Altmann has been very supportive of this initiative and she is regularly quoted in the press and active on social media on the subject. Indeed, one of her tweets caught my eye when she said, using all 140 characters, “Best pension advice: If someone cold calls you abt yr pension JUST HANG UP! Reputable firms won’t call you out of the blue”.
As Thomas Jefferson, the third President of the United States of America, almost, nearly but didn’t quite say “Eternal vigilance is the price of pension freedom”.