Don’t let a scammer enjoy your retirement!
Prospect pensions officer Joe Anderton says pensions scams are on the rise but points out some of the warning signs and offers some simple steps to protect yourself.
We want our members to have a safe and secure pension for their retirement.
Unfortunately, scammers are targeting money in pensions and the current pandemic has drastically increased scam activity as people are being tempted with the promise of being able to access their pension early, in a time when many are having financial troubles.
What is a pension scam?
Pension reforms were introduced in April 2015 that gave people greater freedom in how they use their pension and offered over 55s the opportunity to take their pension as a one-off lump sum.
Individuals now have more freedom over what to do with their pension pot, which is generally positive as it provides people with different methods for funding their retirement. Unfortunately, with millions of pounds of pension benefits accessible that were not before, this has led to an uptake in pension scams.
Pension scams are often referred to pension loans, cashing in your pension or pension liberation but they all mean the same thing which is an agreement to transfer a pension to someone or something that allows you access to it before the age of 55.
Generally, you are only allowed to withdraw money from your pension after the age of 55 and if you do so before this age, you could lose all of your money and face a tax bill from HM Revenue and Customs (HMRC).
How to spot a pension scam
The Citizens Advice Bureau produced a paper called “Too good to be true?” where they surveyed over 2,000 people and asked them to pick the genuine option from the following pension offers.
As you can see, only 12% of respondents selected the legitimate offer and this is an example of how sophisticated pension scams can be.
Common signs of a pension scam include the following:
- A promise of unusually high investment returns
- The offer of a free pension review
- Offering access to your pension before the age of 55
- Pressure to make a quick decision or are encouraged to transfer your pension quickly and send documents by courier.
- Unsolicited approaches by mail, phone call, text message, email or in person.
Self-Invested Personal Pensions (SIPPs)
A SIPP is a legitimate pension product and is a type of personal pension, however a SIPP gives the member greater freedom and choice regarding the assets that their pension is invested in.
SIPPs are not for everyone. They are designed for people who want to manage their own investments and make changes to how their pension is invested, as and when they want to.
However, SIPPs can also have higher charges than other personal pensions and are susceptible to being a vehicle for pension scams given the greater flexibility in the types of investments that they can hold.
For these reasons, SIPPs are more suitable for people who are experienced in investing. Any member who is advised to transfer their pension into a SIPP should think carefully before doing so as it could be part of a pension scam.
Pension scams often involve members receiving advice to transfer their pension into a SIPP only to end up with their pension fund invested in inappropriate investments which can ultimately end up worthless.
How to protect yourself from pension scams
The Financial Conduct Authority and the Pensions Regulator recommend four simple steps that members can use to protect them from pension scams:
- Reject unexpected pension offers whether made online, on social media or over the phone.
- Check who you’re dealing with before changing your pension arrangements. Check the FCA Register or call 0800 111 6768 to see if the firm or person you’re dealing with is authorised by the FCA.
- Don’t be rushed or pressured into making any decision about your pension.
- Consider getting impartial information and advice. In some cases you may be required to do so.
What to do if you think you’re being targeted
If you have already signed a document or starting the process of a pension transfer and now believe that it may be a scam, the first step is to contact your pension provider as they may be able to stop a transfer if it has not yet been completed.
If you think you have been or are at risk of becoming a victim of a pension scam, report it via the FCA’s Scam Smart website.
There are various methods of receiving impartial advice regarding pensions. The government have set up the Money Advice Service, soon to be rebranded MoneyHelper, which members can contact to ask for guidance should they have concerns regarding their pension.