How to spot pension scams

Cold-calls and other types of unsolicited contact via email, text and post are still the number one sign of a pension scam.

Over the last 2 decades, millions of calls were made by unregulated marketing companies to unsuspecting pension savers in an effort to persuade them to transfer their pensions.

The reason? Pension and investment companies were paying BIG commissions to these marketing firms for sending business their way, even if it meant that people would ultimately lose money in high-risk and unregulated ventures. In many cases, these pension savers never fully understood the risk they were undertaking with these transfers which were often to SIPP, SSAS and QROPS type pensions.

In most cases, these calls are made by unregulated marketing companies offering ‘free pension reviews’ rather than bonafide financial advisers, although there is often one behind the scenes ready to rubber-stamp a negligent pension transfer.

The issue of pension cold-calling became so problematic that the practice was made illegal in Feb 2019 after lengthy petitioning from both inside and outside of the industry.

Pension rules mean that the money inside the pension is intended for retirement and my only be accessed after 55 (except in certain special cases, such as serious health complications that have resulted in a shortened life expectancy).

However, many people are told by scammers that they can access their money earlier if they transfer to a recommended scheme.

Drawing money from a pension before 55 is sometimes possible, but there are often huge tax implications which can shave thousands, even tens-of-thousands off the pension value.

In many cases, the money never materialises after the transfer, which may not even be to a recognised scheme, or sometimes while the scheme may be regulated, the investments inside may not be. Once the money is invested abroad, it can be difficult to get back, and may disappear.

Pension scammers often use high-pressure sales tactics in order to force a hasty decision from their target. In some cases, the scammer may still appear polite and to be trying to persuade the intended victim that the action (usually a pension transfer) is in their best interest, but really they are pressuring them into a decision before they’ve had chance to evaluate the offer or get a second opinion. Look out for lines similar to:

• “If you don’t make this decision in the next 24 hours, the opportunity is going to pass you by”
• “I think if you don’t do this now, you’re going to regret it later”
• “I can only hold this offer for you for another few hours, then you’re just going to have to make do with your old pension”
• “If you want to retire then you HAVE to do this deal”
• “I’ve invested in this myself, would I have done that if it wasn’t the right thing to do?”
• “I’ll send a courier for the documents”

Other tactics may involve making the target emotional about their retirement so they make a decision based more on their emotions instead of facts and logic.

Similar to point two, the scammer tells the target that they can benefit from tax loopholes by transferring the pension. Often, this can mean transferring abroad and outside of the regulation of the FCA.

Not only might it mean a letter from the HMRC, but it could mean losing money abroad too.

If investment opportunities that paid high returns with low risk were common, we’d all be invested in them. Sadly, going after high returns usually means undertaking high risk.

Scammers and mis-sellers often tell people that investments offering big returns are actually low-risk, leading them to make a transfer that is not suitable for them, and may lose them money.

In the meantime, high-risk investments often pay the biggest commissions to marketing firms and financial advisers.

This tactic usually involves types of pensions that allow a greater range of investment choice such as SIPPs, SSASs and QROPS.

Some scammers may pretend to be representing legitimate companies (cloned firms).

All individuals and companies that are authorised to give financial advice by the FCA are registered on the regulator’s website. If the FCA is aware of a cloned form operating using another authorised firm’s name, they often post a notice on their website under that name too.

In some cases, scammers may claim to be operating in a way that is ‘backed’ by the government or another body, or may incorporate elements of an authority’s name in an effort to appear legitimate and gain the target’s trust.

Typical of scammers using this tactic is that they cannot be contacted via the main telephone number for the real company.

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Final salary pensions are considered to be some of the most valuable around, and transferring them in seldom in the pension scheme member’s best interests.

While there are instances where a final salary pension transfer may be suitable (such as perhaps a single person with a shortened life expectancy), they are few and far between.

If a marketing firm or adviser is putting on pressure to transfer a final salary pension based on promises of more money in retirement, they may be simply trying to earn a lucrative transfer fee, sometimes worth thousands.

Not all final salary pension transfers are scams or examples of mis-selling, but many are, and the regulators at the FCA are cracking down on bad advisers who give negligent advice.

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