When Davina Frost was advised to invest her pension savings in an overseas property scheme, she thought she was boosting her chances of a comfortable retirement. Instead, she’s now facing an uphill battle to recover even a fraction of her original investment.
More and more people are finding themselves in a similarly distressing position as scammers exploit pension reforms and the uncertainty created by the pandemic to trick them out of
their life savings.
In a recent survey by Hargreaves Lansdown, 79% of over-55s said they had been approached by a scammer in the previous 12 months.
Here we highlight the tactics scammers are using to part you from your cash and what you can do to avoid falling victim.
Why pension scams are on the rise
The 2015 pension rule changes have created more opportunities for fraudsters, as people now have easier access to their savings.
The 2019 ban on pension cold calling seems to have had little impact, with scammers simply approaching victims through other channels instead.
More than £2m has been lost to pension scams this year alone, according to Action Fraud. And that’s likely to be the tip of the iceberg, as many scams go unreported. Average losses stand
at just over £50,000 – double the figure recorded in 2020.
- Find out more: investment scammers running riot on search engines
How to spot a pension scam
Because people now have the option to release their retirement savings, scammers no longer need to access the money directly from a pension scheme. Increasingly, scammers are persuading people to transfer their savings from the safety of established pension schemes into inappropriate or even non-existent investments.
Here are three common warning signs that you might have been approached by a pension scammer:
Davina Frost from Cambridgeshire (pictured above) had just been made redundant and was in poor health when she received the cold call that ultimately resulted in the loss of half her pension savings.
The caller from Portia Financial, an unregulated introducer based in Liverpool, suggested that Davina could end up with a ‘more substantial, easier to manage pension’ and put her in touch with Servatus Ltd, a regulated financial adviser in Dublin.
After carrying out a ‘pension review’, the adviser from Servatus persuaded her to transfer her £96,000 defined benefit pension into a qualifying recognised overseas pension scheme (QROPs). Around half the money was invested in an overseas investment scheme run by a firm called German Property Group (GPG – formerly Dolphin Trust). Servatus told her she could expect an annual return of 10%.
GPG collapsed in 2020. It owes an estimated £1bn to investors and is now the subject of a criminal investigation in Germany. GPG paid introducers and advisers hefty commissions for recommending the scheme to investors – typically 20-30%.
Davina told us: ‘I’ve always been quite careful, but this sounded like a good scheme. I wouldn’t have put money into something I thought was risky. The experience has left me feeling humiliated, depressed and angry’.
She is now dealing with Ireland’s Financial Services and Pensions Ombudsman to see if she can get any of her money back.
- Find out more: how to get your money back after a scam
Beware offers to access your pension early
While there’s been a shift towards investment scams in the wake of the pension freedoms, so-called ‘pension liberation’ scams remain common.
These involve scammers persuading pension savers to access their money before the age of 55 (the normal minimum pension age), often claiming – falsely – that there are legal loopholes, such as loans or cash incentives, which can allow you to circumvent the tax bill that usually applies in this situation.
Victims can be left with tax charges of 55% while scammers disappear with some or all of their pension.
- Find out more: options for cashing in your pensions
What victims can do
Seeking financial advice before making any decisions relating to your pension is one of the best ways to reduce your risk of falling victim to a scam. It’s important to make sure you’re dealing with a regulated adviser, rather than an unregulated introducer.
If you do fall victim to a scam, here’s what you can do:
- Your chances of getting your money back depend on whether you dealt with a Financial Conduct Authority (FCA)-regulated adviser or pension provider. Where a regulated firm was involved, you can ask the Financial Ombudsman Service to investigate and decide whether you are eligible for compensation.
- If the firm you used has since gone out of business, you can turn to the Financial Services Compensation Scheme (FSCS).
- If you’ve only dealt with an unregulated introducer or adviser, there’s little hope of recovering your money.
- Ignore anyone who contacts you offering to help get your money back in exchange for a fee. The FCA has warned about the growing problem of ‘secondary scammers’, where victims are retargeted.
First featured in September’s Which? Money magazine
Magazine subscribers also get access to tailored 1:1 guidance from the Which? Money Helpline.