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Revealed: the top five tricks used by pension scammers

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
28/06/2016

The number of people falling victim to pension scams has soared, costing savers billions of pounds. Here are the top five pension scam tricks to avoid.

Recent figures from the City of London Police showed that in the 12 months to February 2016, more than £13m was lost to pension liberation scams – an increase of 26% from the previous year.

Pension Life, a campaign group set-up to help victims of pension liberation scams who have lost a combined £2bn, reveals the top five tricks used by fraudsters.

1) Guaranteed results

Be wary of any firm guaranteeing investment returns because returns can never be guaranteed.

Pension Life’s chairman, Angela Brooks, says scammers typically use the magic 8–9 per cent growth a year number for two to five years.

“In the real world, there is no such thing as a guaranteed return. It’s a hook to catch people who are, quite understandably, keen to grow or improve their pension,” she Brooks says.

2) Property, particularly the mention of ‘offshore’

Scammers will promise spectacular growth opportunities with all sorts of unusual – or ‘esoteric’ – property developments.

Brooks says: “The problem with property is that it is illiquid and not necessarily easy to sell.  A pension needs to be liquid so that if a member wants to transfer out, reaches the age of 55 or retirement age or dies, the fund has to be ready to transfer out quickly.”

She says if money is all tied up in long-term, speculative property, it can take years to get out of the investment, and an early redemption might attract punitive penalties.

3) Unregulated advisers and funds

If there is no regulation, there is no protection.

“Don’t be fooled into being assured that a firm is regulated when it isn’t. Phrases such as Company X works in conjunction with a fully regulated and authorised company’ usually means Company X is not regulated,” Brooks says.

If an unregulated fund goes bust, the investors lose everything and there is no protection.

4) Scheme looks like an advisory firm

Individuals should watch out for schemes presented by a company acting like it’s giving advice, but claims, if things go wrong, that no advice was given.

“When the whole scheme goes pear-shaped, the firm responsible – which could even be a Financial Conduct Authority-regulated firm – will try to claim they did not provide advice – they just offered the scheme and left it to the participants to make up their own minds as to whether it was suitable for them.” Brooks says.

5) Check there’s a ‘fact find’ for your risk profile

Brooks says it’s crucial to determine an investor’s risk profile. Before any major financial transaction, there should always be a fact find, which is a Q&A to determine what this is.

She says: “Any investment recommendations should respect the individual’s risk appetite.  Most ordinary people are ‘low-risk’ – but the scammers often try to trick victims into agreeing they are ‘sophisticated’ or even ‘high risk’.”

Brooks has called for HM Revenues and Customs to stop registering pension schemes without conducting ‘proper due diligence’, adding that a failure to do so will mean more lives will be devastated by pension liberation scammers.