Pension scams can have a devastating effect on retirement savings (Image: Getty)
Scammers set out to capture the pension savings people build up over the years by promising high returns and low risk. In reality, pension savers can be scammed and left with nothing. You could lose your life savings. What can pension savers do to keep themselves and their funds safe?
Every year thousands of people retire and for many who have been prudent and fortunate enough to have saved towards a pension, it can be a time of change and an opportunity to start something new. Pensions can amount to considerable sums and so perhaps we should not be too surprised to find that they attract the attention of the scammers and fraudsters who are lining up to take your money.
Even people who regard themselves as financially astute can be the victim of a pension scam, and every day there are more stories. It’s essential to spot the warning signs.
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HMRC can issue a hefty tax bill if a person withdraws their pension savings before the age of 55 (Image: Getty)
Scammers can be articulate and demonstrate knowledge of finances, markets and investment opportunities. They often have credible-looking websites, testimonials and materials that are hard to distinguish from the real thing. In many of the sophisticated scams, the criminals will try to persuade pension savers to transfer their entire pension savings or release funds from it, by making attractive-sounding promises that inevitably are not kept.
The pension money is often invested in unusual, high-risk investments, for example:
Many scammers also persuade savers to transfer their money into pension schemes that the scammer controls.
Tax ‘loophole’
Scammers sometimes promise pension savers early access to their pension pot through loans or ‘loopholes’. But if you take all your money, or if some is released, even into the hands of scammers, before the age of 55, you could face a hefty bill from HMRC as well as lose your savings, even if you didn’t get the money and it went to the scammer. Savers could lose all their money and face a high tax bill from HM Revenue and Customs (HMRC) if they withdraw their pension savings before the age of 55.
People are urged to Take Five and contact Action Fraud if they do fall victim to a scam (Image: EXPRESS)
Pension scams to watch out for
1. Investment fraud
Investment fraud happens when scammers misrepresent high-risk or false investments to pension savers. They make out the returns will be big, yet low risk.
The scammers will use a variety of techniques to persuade you to transfer your entire pension pot, or a large sum from it, by making attractive-sounding promises of high returns and great investment opportunities that don’t exist.
2. Pension freedom
A few years ago, the government liberated pensions which meant you can take a tax-free lump sum from your pension when you reach 55 – that could mean you are allowed to withdraw up to 25 percent of your pension pot, tax-free.
But, if you access these pension savings before age 55, you’ll face a large tax bill. Sometimes scammers will claim they have a way around this. But it’s not true and you can end up with your savings going missing and still face a large bill from HMRC. The scammers may promise false loans to facilitate things but don’t believe a word of it.
The other thing scammers try with these ‘early access’ services is to charge a large fee upfront that could be 30 percent of the funds being released.
3. Scam schemes and providers
There have been cases where fake pension schemes and providers are set up to deceive victims that don’t exist at all. Sometimes they do exist but are fraudulent.
Scammers often tell victims that they can ‘guarantee better returns on pension savings’, often using high-pressure sales tactics such as limited-time offers, and sending documents via couriers, who wait around until you sign them. Any sign of this kind of urgency should ring alarm bells.
Pension scams often don’t become obvious until years later (Image: Getty)
4. Clone firms
This is a tricky one to detect. Scammers create a website and materials that appear to be a well-recognised brand in the pension space. Posing as a real company, victims get drawn into what they think is a legitimate company that then takes their money.
The Financial Conduct Authority (FCA) has a warning list that includes unauthorised and cloned firms it has identified, complete with the fake firms’ contact details, so you know what to avoid. So take a look at that list before making an investment.
5. Claims management firms
Not all claims management companies are scams, but some have been known to engage in cold calling about pensions, which is illegal, and a likely sign of a scam. Scammers’ tactics have evolved, and nowadays you may also be contacted through social media.
Scammers who contact you may claim you’ve been mis-sold a pension, and will then ask for a fee to begin a claims process. But the fee is money down the drain.
6. Employer-related investment
Employer pension schemes are supposed to operate in the best interests of the company’s employees. But if a firm diverts company pension funds to make inappropriate investments in the business, that is a breach of the law. In the past where this has happened, it has led to pension savers losing money.
If you have concerns about your workplace pension scheme, you can report it to The Pensions Regulator by emailing wb@tpr.gov.uk.
Warning signs of a pension scam
If you receive a cold-call about a pension, it’s likely to be a scam. Cold calling about pensions is illegal.
Some scammers have moved to sophisticated online models, making contact through social media, including through Facebook and LinkedIn, or using friends and family to reach new clusters. Others rely on established practices like offering a ‘free pensions review’ and as you respond, they gradually draw you into the fraud.
Other common signs of pension scams:
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Phrases that include ‘pension liberation’, ‘loan’, ‘loophole’, ‘savings advance’, ‘one-off investment’, ‘cashback’
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‘Guarantees’ they can get better returns on pension savings
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Promises to release cash from a pension before the age of 55, with no mention of the HMRC tax bill that would arise
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Urgent and high pressure sales tactics – time limited offers to get the best deal; using couriers to send documents, who wait until they’re signed
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Suggestion of unusual high-risk investments. These may be presented as opportunities overseas which are unregulated
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Offers of ‘fixed-term pension investments’. These mean that victims often have no idea something is wrong for several years
To help protect yourself from all kinds of scams, including those that are pension-related, you can reduce the amount of data that companies have on you. If those companies don’t have your data, they can’t lose it or have it stolen by hackers and scammers. Rightly Protect is a product that can help you find out which companies have your data and then get it deleted from those that don’t need it any more, quickly and for free.
Top Tip: LinkedIn is a great tool for staying in touch with professional colleagues. However, your email address could be easily accessed by scammers if your security settings are not up to date. Review who can see or download your email address by doing the following on desktop:
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In the top right corner, under Me, navigate to Settings & Privacy
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Go to Visibility in the left column
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Under Visibility of your profile and network, click who can see or download your email address and select: only visible to me
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Toggle off the option for connections to download your email via data export
