Ostrich farms and storage pods: 10 investment scams to avoid
Pension freedoms, allowing those aged 55 and over unfettered access to their pension pots, launched in April 2015.
In the month after, the City of London Police revealed pension scam losses more than trebled from £1.4m to £4.5m as tricksters used the new rules to target victims.
According to WEALTH at work, a financial education in the workplace provider, con artists have identified an area where people are vulnerable and tempted them in with claims of guaranteed returns.
Here are the 10 most common investment scams from recent years. Though WEALTH at work notes not all are illegal, it says they’re unlikely to give the returns suggested.
The top 10 investment scams to watch out for
- Carbon Credits: This one keeps reappearing and plays on the individuals interest in ethical investment. Businesses buy credits to offset their carbon emissions and these are traded, but conmen sell them at a price far higher than their real value, and traders are unlikely to be interested in buying such small volumes.
- Death bonds: Individuals are encouraged to invest in funds that buy second-hand life insurance policies. The terminally ill pensioner agrees to sell their policy for a lump sum which is lower than the amount that would payout when they die. The ‘investor’ then receives the insurance payout when they die. However these ‘low risk’ investments fail when policyholders live longer than expected, and money can be tied up for years.
- Forestry: Forestry scams have been big business as many people like the idea of investing in something that is ethical and good for the environment. However, there is a famous story of investors going to visit one of the forests they invested in. All looked good on arrival, but locals suggested that they fly over the site to really look at their ‘investment’ and found that the forest was shaped like a donut with no trees in the middle.
- Land banking scheme: The Financial Conduct Authority (FCA) estimates that investors have lost more than £200m to these scams. Investors are told they have the opportunity to buy land on which development is going to take place, which will make them a fortune. However, often there are no plans for any development and the land is worthless.
- Loans: There are many legitimate peer-to-peer lending schemes, where savers are matched with individuals who want to borrow money. However, it is important to check that the scheme is regulated, otherwise it is difficult to know if money is going to a creditworthy borrower and monthly reports can be faked.
- Ostrich Farms: In the mid-nineties fear about ‘mad cow disease’ was played on by conmen. Thousands of people invested believing that ostrich meat would become popular in the UK. Some were legitimate investments but many were scams, with orders taken for non-existent ostriches, and millions of pounds were lost.
- Ponzi schemes: Ponzi schemes are one of the biggest scams. There is no actual investment, and instead investors are paid returns with their own money, or money paid by subsequent investors. These can go on for years until the number of new investors dries up and the scheme collapses. These are often referred to as pyramid schemes.
- Precious metals: Conmen often promote investing in precious or rare metals. It is unregulated, and often the product doesn’t actually exist. The scammers know that investors are unlikely to visit the ‘gold mine’ and instead trust that it does exist and that it is actually producing gold.
- Structured products: Structured products offer returns based on the performance of underlying investments and are marketed as a way for cautious savers to get better returns than their bank account, without the risk of equities. The returns however, depend on stock market returns being met and many companies have been fined for mis-selling. There are some structured products which are not scams, but it is difficult to tell them apart.
- Storage Pods: Investors buy a long lease on a storage pod or unit with the theory that people will always need storage. However, these investments are unregulated, and there is little evidence that the high rental yields promised have ever materialised.
Jonathan Watts-Lay, director, WEALTH at work, said: “The pension freedoms are good news for individuals, however many people simply don’t know what their retirement income options are.
“Sadly, this is the perfect market for scammers. I hope that this list will warn people of the things to look out for. Many people have been caught out by scams like this; unfortunately they weren’t the first, and sadly they won’t be the last.”
He said the rule is, whatever investment you are planning to make, check out the company first to ensure it is FCA registered. You can also visit the FCA’s ScamSmart site which includes a warning list of companies.