Find out how pension scams work, how to avoid them and what to do if you suspect a scam.
In 2015/16, there were 3,186 reports of investment fraud. However the true figure is likely to be far higher as the majority of fraud is unreported. In the same year, victims lost an average of £32,000 to these scams.
Advice for Life are supporting the FCA campaign called ScamSmart.
Typically, experienced investors and those over 65 with savings in excess of £10,000 are targets for investment fraud, and it is important that we remain aware of the facts and best practice when taking advice.
Investment scams are designed to look like genuine investments
What is investment fraud?
Investment fraud occurs when fraudsters’ pressure people into buying investments that promise high returns, but in reality are either worthless or non-existent. The most common type of investment scam is share fraud, but fraudsters may also offer investments in bonds, currency, commodities such as gold or diamonds, property developments overseas or even fine wine.
Investment fraud is often sophisticated and very difficult to spot. Fraudsters can be articulate and appear financially knowledgeable. They may have credible websites, testimonials and materials that can be hard to distinguish from the real thing. So it’s important you know how to spot the warning signs.
Spot the warning signs
Investment fraudsters will use a variety of techniques to try to take your hard earned money, and regularly target experienced investors.
They may do one or more of the following:
Make contact unexpectedly about an investment opportunity. This can be a cold call, email, or follow up call after you receive a promotional brochure out of the blue.
Apply pressure on you to invest in a time-limited offer, offer you a bonus or discount if you invest before a set date, or say that the opportunity is only available for a short period of time.
Downplay the risks to your money, or use legal jargon to suggest the investment is very safe.
Promise tempting returns that sound too good to be true, offering much better interest rates than those offered elsewhere.
Call you repeatedly and stay on the phone a long time.
Say that they are only making the offer available to you, or even ask you to not tell anyone else about the opportunity.
Scammers are targeting pension pots of all sizes. Make sure you know how to spot the warning signs and how to keep your pension safe.
Pension scams can be hard to spot. Scammers can be articulate and financially knowledgeable, with credible websites, testimonials and materials that are hard to distinguish from the real thing.
How pension scams work
Scammers usually contact people out of the blue via phone, email or text, or even advertise online.
Scammers design attractive offers to persuade you to transfer your pension pot to them (or to release funds from it). It is often then:
invested in unusual and high-risk investments like overseas property, renewable energy bonds, forestry, storage units;
invested in more conventional products, but within an unnecessarily complex structure which hides multiple fees and high charges; or
simply stolen outright.
The warning signs
Scam offers often include:
Free pension reviews
Higher returns - guarantees they can get you better returns on your pension savings
Help to release cash from your pension, even though you’re under 55 (an offer to release funds before age 55 is highly likely to be a scam).
High pressure sales tactics - the scammers may try to pressure you with ‘time limited offers’ or even send a courier to your door to wait while you sign documents.
Unusual investments - which tend to be unregulated and high risk, and may be difficult to sell if you need access to your money.
Complicated structures where it isn’t clear where your money will end up.
Long-term pension investments – which mean it could be several years before you realise something is wrong.
4 simple steps to protect yourself from pension scams
Step 1 - Reject unexpected offers
If you’re contacted out of the blue about a pension opportunity, chances are it’s high risk or a scam. If you get a cold call about your pension, the safest thing to do is to hang up - it’s illegal and probably a scam.
Be wary of offers of free pension reviews. Professional advice on pensions is not free – a free offer out of the blue from a company you have not dealt with before is probably a scam.
And don’t be talked into something by someone you know. They could be getting scammed, so check everything yourself.
Step 2 - Check who you’re dealing with
Check the Financial Services Register to make sure that anyone offering you advice or other financial services is authorised by the Financial Conduct Authority (FCA), and they are permitted to provide those services in relation to pensions. If you need any help checking, call the FCA Consumer Helpline on 0800 111 6768.
Check they are not a clone - a common scam is to pretend to be a genuine FCA authorised firm (called a ‘clone firm’). Always use the contact details on the Register, not the details the firm gives you.
Step 3 - Don’t be rushed or pressured
Take your time to make all the checks you need – even if this means turning down an ‘amazing deal’. Be wary of promised returns that sound too good to be true and don’t be rushed or pressured into making a decision.
Step 4 - Get impartial information or advice
You should seriously consider seeking financial guidance or advice before changing your pension arrangements.
The Pensions Advisory Service - provide free independent and impartial information and guidance.
Pension Wise - If you’re over 50 and have a defined contribution pension, Pension Wise offers pre-booked appointments to talk through your retirement options.
Financial advisers - It’s important you make the best decision for your own personal circumstances so you should seriously consider using the services of a financial adviser. If you do opt for an adviser, be sure to use an adviser that is regulated by the FCA and never take advice from the company that contacted you or from someone they recommend, as this may be part of the scam.
If you suspect a scam, report it
Report to Action Fraud - If you suspect a scam you should report it to Action Fraud on 0300 123 2040 or at www.actionfraud.police.uk.
If you've agreed to transfer your pension and now suspect a scam, contact your pension provider straight away. They may be able to stop a transfer that hasn't taken place yet. If you are unsure of what to do contact The Pensions Advisory Service for help on 0800 011 3797.
Be ScamSmart with your pension. To find out more, visit www.fca.org.uk/scamsmart
Further information can also be found in the Pension Scams leaflet which can be found in the Document Library section of our website.