The complexity of pensions means that they’re open to abuse, and developments in technology have made scams more elaborate in recent years. Areas such as Sipps and pension unlocking are particularly popular with fraudsters.
The Serious Fraud Office (SFO), alongside the Financial Services Authority (FSA), the Pensions Regulator and other trade bodies, are working to stamp out pension scams – we’ve listed the most common ones so you know what to watch out for.
1. Self-invested personal pensions (Sipps)
Self-invested personal pensions (Sipps) allow savers to choose where they invest their pension fund, so fraud is usually based around risky investments. The SFO says overseas property, golf courses and sustainable energy are among the common investments fraudsters use when targeting consumers.
Fraudsters will praise the good returns on these schemes and encourage savers to invest – but often they will never see a penny of their money again.
Jane de Lozey, SFO joint head of fraud, says: ‘Some of these investments offer 16% returns – this should set alarm bells ringing. If something looks too good to be true, that is usually the case.’
2. Unregulated collective investment schemes
It’s not just Sipps that offer a potential route for pension investment fraud. Unregulated collective investment schemes (Ucis) are also pushed towards savers with the promise of significantly boosting pension income.
Ucis often invest in things like rainforest development and foreign hotels, set far away from the UK so it’s harder to keep an eye on them.
But what’s worse is that Ucis aren’t regulated by the FSA and aren’t covered by the Financial Services Compensation Scheme – so if the investment turns out to be dodgy, you won’t have a plan B.
The FSA has now banned the sale of Ucis to retail or small investors, unless they have signed a form to say that they are a sophisticated investor.
3. Pension unlocking
Accessing your pension early might sound attractive, but it’s another area fraudsters are using to get their hands on your retirement funds. Pension unlocking companies not only charge a large fee for giving you this access – but they also fail to explain the tax implications.
De Lozey says: ‘People are working with advisers who they think are acting in their best interest, but then they are hit by a tax whammy.’
Although pension unlocking for the over 55s is allowed by HMRC, these scams often take an unsolicited approach such as cold calling and texts. Some of them even threaten that you’ll owe the pension company money in retirement if you don’t unlock your fund now.
What you can do to prevent pension fraud
- Always seek regulated financial advice. Don’t jump at the first opportunity to access your pension or boost your retirement income – ask an expert
- Don’t fall for jargon. Many pension fraudsters have worked in financial services and talk the talk. But don’t let your judgement get clouded by it, ask for a breakdown of what they’re offering and who they’re regulated by
- Trust your gut. De Lozey says: ‘Do not think of this person as a professional, but as an ordinary person. Ask yourself: do you trust them?’
- Beware guarantees. Ucis and Sipp investment schemes will often say this as a means of drawing you in – but often these claims don’t stand up.