Don’t Let Your Pension Pot Become A Honey Pot For Scams


pension potPension freedom is part of the government’s plans for pension reform. Instead of forcing you to use a personal pension pot to buy an annuity, there are now plenty of other ways to use the cash you build up for retirement.

There are new and potentially more rewarding ways to grow your money, rather than simply leaving it in the hands of a pension provider. People are taking a wedge of cash at retirement to pay off their mortgage, to start a ‘golden age’ business, take a holiday of a lifetime – but there is a downside to this new freedom.

Fraudsters may be targeting your money, and they are developing new ways to part you from it.

There’s evidence that pensions have become a honey pot for fraudsters as they attempt to persuade savers to part with their hard earned savings. It’s a growing problem, and the number of reported scams has doubled in the past six months. Anyone with a pension pot could be at risk – not just those who are ready to take their funds.

The poor performance of traditional funds in recent years is one of the roots of the problem. Low rates have led many of us to search for deals that pay more than the lacklustre interest offered via traditional accounts. However, this search for a decent return means that more and more savers are being tempted by unfamiliar investments, which could open them up to investment fraud.

Research by industry regulator the Financial Conduct Authority (FCA) found that many over 55s are turning to investments to get their money working harder – of those questioned, 41% had moved money out of traditional savings accounts such as fixed rate bonds and ISAs and put it into investments. Another 23% also stated that they were considering putting their money in unfamiliar types of investments in the future.

Yes, investments do have the potential to generate higher returns – albeit with higher risks – but many of those questioned said that they had put their money into unregulated investment products. Of these, 48% did not seek financial advice beforehand, or consult the FCA’s Warning List. Even more worryingly, 13% of those questioned who have invested in unregulated products were unaware that their money would not be protected by the Financial Ombudsman Service or the Financial Services Compensation Scheme.

Some at least are due for a nasty surprise when they come to cash in their investments.

Unsolicited calls

Why does this happen? It seems that unsolicited investment calls are on the rise. Some of these calls may be from legitimate companies, but fraudsters are using similar tactics to get hold of your pensions. Common tactics include offering to ‘liberate’ your pension by transferring it away from a genuine pension scheme to one that allows you to cash in your pension before you turn 55. Another common tactic is to move your pension overseas, commonly to Malta or Hong Kong, promising that doing so can double your money in ten years’ time.

They fail to mention that accessing your pension before you are 55 breaks the tax laws – risking a 55% tax penalty – and that transferring your pension overseas can also land you with tax problems.  People risk losing their pension savings to a hefty tax bill, leaving them with nothing to live on in retirement.

Things can be worse still. Some scams involve moving your money from the safety of a legitimate account to that of a fraudster, and of course you will never see a penny of it again.

There are calls for a change in the law to make it easier to block suspicious transfers to protect pension savings. The Queen’s Speech on 18 May gives the Government the opportunity to introduce a new Pensions Bill giving pension savers greater protection, but it is not in force yet, if it is ever drafted.

People need to take personal responsibility and be on their guard, and report anything they believe to be suspicious. Remember the old adage ‘if it’s too good to be true, it probably is.”

If you want to reap the potential benefits of investment, but steer clear of investment fraud, then it is important to be on your guard and do your research, and of course get advice from experts you can trust.

When you need help with your retirement options, our professional team can help you explore your options and define a plan right for you. Simply give Continuum a call.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change

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