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Seven pension scams to watch out for as crooks prey on the vulnerable

The surging cost of living could result in more vulnerable people being taken in by the fake promises of pension scammers this winter, The Pensions Regulator has warned. 

To highlight the magnitude of the threat posed, TPR estimates that £2.5trillion worth of pension wealth in the UK is ‘accessible’ to fraudsters, which represents a ‘huge target base for criminals’. 

The regulator, which has published a list of seven key pension scams to watch out for,  is concerned that savers may be lured by offers to access their pension savings early to cover essential household bills or be attracted by fake investments offering high returns that never materialise. 

Fraud ruins lives: Make sure you are aware of the seven key pension scams in the UK now

In a bid to stay one step ahead of the crooks, TPR has today launched a fresh pension scam-fighting strategy. 

The regulator said it would do more to educate savers about the threat scams pose, and prevent practices which harm people’s retirement pots and plans.

As part of its new strategy, TPR has outlined different types of pension scams, including investment fraud and fake pension liberation scams. 

It has also highlighted ‘recovery room’ scams, where fraudsters approach pension savers who have been defrauded already, and offer to help them get their money back for an upfront fee. 

Seven pension scams to avoid 

The Pensions Regulator listed seven different types of pension scams savers should avoid. 

The list, which is not exhaustive, demonstrates the scale and breadth of methods crooks are using to try to get you to part with your hard-earned pension pot cash.

1. Investment fraud – misrepresenting high-risk or false investments to savers.

2. Pension liberation – misleading savers into accessing their pension pots before the age of 55, which incurs a hefty tax charge – even if the money has already vanished in a scam – or potentially involves tax evasion.

3. Scam pension schemes and providers – setting up schemes to deceive victims that either don’t exist, or exist but are committing fraud.

4. Clone firms – disguising scam schemes and providers as legitimate entities.

5. Claims management companies – making cold calls to claim savers have been mis-sold a pension, then asking for an advance fee to begin a claims process.

6. Employer related investment (ERI) – breaching restrictions against employers diverting employees’ pension payments to invest inappropriately in their business, leading to losses to savers.

7. High fees – imposing excessive fees often layered through unnecessarily complex business structures.

Pension scams can decimate retirement plans and leave people tens of thousands of pounds out of pocket, and in some cases it is impossible to claw all the money back. 

Nicola Parish, executive director of frontline regulation at TPR, said: ‘Criminals who steal people’s pensions ruin lives. It’s plain and simple. And as the regulator for workplace pensions, our primary focus must always be on ensuring savers’ pension money is protected now and in the future.

‘Scammers use psychological deception and professional looking materials to trick people out of their savings. If they can, they will take every penny and devastate savers’ financial futures. 

‘That’s why we are determined to do all we can to educate savers on the risk of scams and to help stop scammers in their tracks.’

Parish wants the pensions industry, regulators, and the Government to do more and ‘truly work together to put savers at the heart of all that we do’.

TPR said: ‘We want industry to improve saver engagement with their pensions and be proactive in their pension scam warnings. Schemes, providers, and advisors can and should do more to make pensions work well for consumers.’

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TPR has committed to developing a Pension Scams Action Group strategic threat assessment annually or biennially, and exploring the creation of a dedicated scams hub to co-ordinate intelligence. 

The regulator also announced that it will look at opening a ‘regulatory sandbox’ to allow pension industry insiders to test solutions for scam prevention and intelligence gathering in partnership with other relevant watchdogs. 

TPR said that because pensions are complex and financial literacy levels are generally fairly low, an increasing number of savers could end up being scammed out of their pension savings this year.

Becky O’Connor, head of pensions and savings at Interactive Investor, said: ‘Pension scams involving people’s life savings are among the most devastating. Bluntly, they ruin lives.

‘With the cost of living crisis biting harder than ever, the temptation of fake promises like early access to a pension or higher investment returns leaves people even more vulnerable than usual.

‘Preventing pension scams should be one of the most important things on the agenda and we need to start with a better understanding of what a pension scam actually is.

‘The Pensions Regulator’s “seven types of pension scam” is helpful and worth a read for everyone with a pension.

‘Anyone can be targeted, even people who have not yet retired. Scammers are so clever now that you might not even realise you were vulnerable to this kind of marketing pitch until it is too late.

‘It’s vital for an industry that has been no stranger to scandals to clamp down on pension scams – trust in pensions is important if people are going to be able to retire well in years to come.

‘We need people to engage with their pension savings with confidence and security, not live in fear of touching them.’

Tom Selby, head of retirement policy at AJ Bell, said: ‘The last two years have already been incredibly difficult for millions of people, with coronavirus and lockdowns taking a massive toll on people’s physical and mental wellbeing, including their financial health in some cases. 

‘On top of this, the cost of living is rising rapidly, with the energy price cap set to surge yet again later this year.

‘All of this means millions of Brits face being on or near the financial precipice in 2022. Depressingly, this is a perfect environment for scammers to thrive.’

He added: ‘Unscrupulous fraudsters will attempt to take advantage of vulnerability through any means possible, from offering “early access” to pensions to pushing dodgy investments promising sky-high, guaranteed returns.

‘Offers such as these might be particularly tempting to people experiencing inflation on the brink of double-digits.

‘However, the reality is that, unless you are in serious ill-health, accessing your pension early will lead to a huge tax penalty from HMRC, while being lured by the promise of sky-high investment returns from a scammer could see you lose everything.

‘Regulators are right to get on the front foot on this and the vast majority of the pensions industry stands ready to help educate customers about the risks.

‘It is particularly positive TPR is taking steps to improve intelligence sharing and testing new scam prevention solutions. It is vital firms share any concerns they have about schemes, firms or individuals with the relevant authorities, and vice versa, to ensure as many savers as possible are protected.’

Five tips to help you avoid becoming a pension scam victim

Staying ahead of scammers is no mean feat, but experts at AJ bell have outlined five simple steps to help you avoid falling victim to crooks who want your cash. 

1. Hang up if someone phones you out of the blue!

If someone phones you up unexpectedly and wants to talk about your pension, your best bet is to hang up the phone straight away. 

Most people at some point will have received a phone call from someone they do not know claiming to offer an incredible investment opportunity for their savings or a ‘pension review’ service. If this happens, end the call immediately.

Equally, do not respond to text messages, emails or social media messages claiming to hold the key to retirement nirvana. In all likelihood this will be a scammer phishing for victims, so, whatever you do, do not take the bait. 

2. Don’t deal with unregulated ‘advisers’ 

While telephone, text, email and social media remain the primary weapons of choice for the modern con artist, some continue to knock on doors, usually targeting older people they think are more likely to be vulnerable. 

Make sure you only deal with FCA-regulated advisers. This is particularly important as if you are sold an investment by an unregulated individual, you will not have recourse to compensation.

3. Be wary of overseas or crypto investments promising sky-high returns

Scammers often promise double-digit returns through exotic investments in far-flung locations. 

Promoting cryptocurrency investment ‘opportunities’ has also become an increasingly popular route for fraudsters. 

If you are told you can get 10 per cent-plus annual returns from a teak plantation in South American or a hotel room in Spain, tread carefully.

Often fraudsters will advertise investments in an asset that does not exist or has not yet been built. 

4.  Watch out for schemes offering ‘guaranteed’ returns 

Nothing is guaranteed when it comes to investments. If a company you have never heard of says it can deliver ‘guaranteed’ returns of any amount, do not touch them with a barge pole. 

5.  Don’t rush to make a decision 

Do not be forced into doing something you are not comfortable with and might regret by a pushy salesman or saleswoman desperate to boost their commission. 

Your pension might just be the most valuable asset you ever own, so invest it wisely. 

And if you are at all unsure, check the FCA’s ScamSmart website or speak to a regulated financial adviser before making any decision. 

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