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Pensions: 5 ways to detect a fraudster

Pension freedom has led scammers to target savers' retirement pots. Here are five signs to check if you're dealing with a dodgy salesman.


by Michelle McGagh on Feb 26, 2016 at 08:00

Pensions: 5 ways to detect a fraudster

The City regulator is preparing itself to tackle a new wave of mis-selling in financial services caused by pension freedoms.

A report by the National Audit Office (NAO) reveals the Financial Conduct Authority (FCA) is concerned about how greater access to pension savings could provoke mis-selling.

‘[The FCA] has identified pension reforms as a possible trigger for future mass mis-selling and is taking action to prepare itself, and try to prevent mis-selling where possible, although risks remain,’ said the report.

The report said the freedom around pensions raised the risk that ‘vulnerable and unsophisticated consumers make financial decisions that are not in their best interests’ and that firms could take advantage of customers’ inexperience 'to sell inappropriate products’.

The regulator has already put plans in place to try and reduce the number of people who become victims of scams by preventing the sale of unsuitable products and detecting the mis-selling of self-invested personal pensions (Sipps) at an early stage.

It believes early intervention will prevent between £16 million and £235 million of consumer detriment.

However, the NAO said the FCA ‘lacked good evidence’ on whether its actions would reduce the amount of mis-selling overall.

The FCA’s measures have yet to help consumers as one in three over-55s has been targeted by a potential pension scammer in the past three months.

According to Retirement Advantage, the number of people being targeted by fraudsters has increased from one in five in June 2015 to a third.

The scams involve retirees being offered free pension advice or unsolicited investment opportunities either by phone, text or email.

Andrew Tully, a pension expert at Retirement Advantage, said it was a ‘huge concern’ that the number of people being offered free reviews and investment opportunities was increasing.

‘This seems to be the start of a trend so it is crucial people are alert to the possibility that scammers may get in touch,’ he said.

‘It is clear there are unscrupulous people preying on certain groups, using increasingly sophisticated and convincing ways of trying to defraud large amounts of cash from people’s pensions. We all need to be on constant guard; if an opportunity sounds too good to be true, it almost certainly is.’

There are five scenarios that Tully said should sound a warning bell for retirees.

1. They offer access before age 55: pension funds generally cannot be accessed before the age of 55 so if a company is telling you they can give you your savings early, it’s likely to be a scam and you could be left with a huge tax bill if you take you cash, and possibly not receive any of the cash either.

Tully said it was only possible to access pensions early ‘in rare situations, for instance if you are very ill’.

2. They want you to invest the lot: if a company is recommending you take out a large chunk of your pension or the whole lot, and is encouraging you to invest it with them, give them a wide berth.

‘There are significant tax implications if you take lots of your savings in one go, so check the tax position before you make any decisions,’ he said.

3. You are warned you could miss out: the last thing you need when deciding the best course of action for your retirement finances is to be rushed into a decision and Tully said to avoid companies that gave ‘warnings that the deal is limited and you much act now’.

‘Choosing the right retirement income product is a big decision and shouldn’t be done quickly or under pressure,’ he said.

4. Seeking advice is discouraged: every person aged 55 and over is entitled to a free 30-minute consultation with the government’s guidance service Pension Wise but scammers would rather you didn’t talk to the experts.

Tully said to be wary if you are ‘discouraged from seeking professional financial advice or talking to Pension Wise or The Pensions Advisory Service’.

‘An adviser would be able to explain the rules and tax implications of different options and help you make the best choices for your personal circumstances, so be very suspicious if this is discouraged,’ he said.

5. The company is unregulated: there is an easy way to check whether a person or a company is legitimate or not – check the FCA register. All authorised advisers and companies will be listed on the register, which you can search using individual and company names.

Tully said: ‘The register is a public record of all the regulated firms and individuals in the financial services industry, including retirement income providers and investment companies.’

Graham Vidler of the Pensions and Lifetime Savings Association said retirees were being ‘bombarded’ with information ‘that they cannot unpick’.

He added that many felt ‘overwhelmed’ by the retirement decisions they have to make ‘which is not surprising because of the low base of knowledge and [the fact] that they have never [retired] before’.

‘They are worried about making a mistake or being the victim of a scam,’ he said.

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