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Pension fraudsters change tack after Budget reforms
So-called pension 'liberators' recycled their scams within hours of new pension freedoms being introduced in the Budget, say experts.
by Michelle McGagh on Jun 16, 2014 at 15:47
The Budget heralded a new era for pensions, ending the need to buy an annuity and giving people access to their entire pension from age 55. It had been hoped the new flexibility would put an end to pension 'liberators', who try to con savers out of their pensions. Unfortunately, experts are concerned the scammers have refocused their efforts elsewhere.
Previously pension liberation scams had offered savers the chance to take out their entire pot at once and to take it before age 55. While this is not illegal the fraudsters often charge a large undisclosed fee and failed to tell those using the schemes they would be hit with a large tax bill. In the worst case scenario the liberators would run off with the entire pot.
The Budget changes have made pension liberators’ scams more difficult to operate because the rules around accessing pensions are more transparent but pensions experts are worried liberators have moved to new types of fraud.
Jamie Jenkins, Standard Life head of corporate strategy and propositions, said liberators had ‘reinvented’ themselves as overseas investors. ‘I saw one example of a company that said: "Have you heard about George Osborne’s Budget? Now you can take all of your money out [and invest it with us]",’ he said.
Although this particular company said those accessing their entire pot would pay a large tax bill, it reassured them that ‘we will more than compensate for the tax you pay by investing in overseas property schemes’. Jenkins said whilst it may have been a legitimate investment opportunity, he ‘would not bet [his] life savings on it’.
Margaret Snowden, director of pension administrator JLT Employee Benefits and leader of a pension industry group trying to clamp down on 'liberators' said the fraudsters still posed a threat to consumers. She has also seen a shift in the way these groups encourage consumers to take their entire pension as cash and invest it in high-risk investments.
However, she said it was difficult for the Pensions Liberation Industry Group (PLIG) she chairs to identify these operations as it was tasked with locking down pension liberation and was not responsible for judging whether investments were a good or bad idea.
‘It is quite difficult for a group like ours to talk about what is a good and what is a bad investment,’ she said. ‘If someone is investing in mango trees in Malaysia, to one person that is a good investment and to another than is a bad investment.
‘We want to raise awareness for those who are being asked to transfer [out of pensions] early to make sure they get proper information before they transfer their money anywhere,’ she added.
Quick off the mark
Snowden said the problem with pension scammers is the speed with which they work and noted that ‘within hours’ of the new pension rules being introduced new schemes trying to convince people to hand over cash had been established.
The City watchdog, the Financial Conduct Authority (FCA), was forced to put out a warning at the end of May highlighting a new scam that had launched on the back of the ‘guidance guarantee’ announced in the Budget.
Cold-callers were already found to be targeting savers claiming to be from the Department for Work and Pensions offering a ‘free pension review’ as part of the guidance guarantee and the promise of ‘better returns’ for investing their cash. The FCA told individuals to ‘hang up the phone’ if they received one of these calls as the companies were not authorised by the regulator.
Jenkins said although the promised returns from scammers may seem attractive they were usually too good to be true. ‘These people tend to respond to changes in the Budget more quickly than legitimate, established companies. They are recycling their scams,’ he said. ‘I can see how [the scam] would be attractive to some people…But there is a risk of going along with the person who speaks to you most convincingly.’
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