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How to spot and avoid a pension scam

In the 25 years I’ve been a regulated financial planner I have come across a pension scam twice, both related to the same company. Unfortunately, it wasn’t obvious to the couples introduced to me that they had been scammed. Years later, they still don’t have their money back.

The scale of such scams has recently been revealed: The Financial Conduct Authority (FCA) says that more than £2,241,774 has been reported lost to pension scammers between January – May 2021, according to complaints filed with Action Fraud. And they believe the number of victims is likely to be much higher, because savers are failing to spot the signs of a scam and aren’t aware of how much is in their pension pot.

Scammers targeted pension pots large and small, with individual losses ranging from under £1,000 to as much as £500,000. The average victim was described as a man in his 50s – but this could happen to anyone, so watch out.

The average loss this year was £50,949, according to complaints filed with Action Fraud. More than double last year’s average (£23,689).

It’s said that football fans approaching retirement appear particularly vulnerable to scams, with research showing just 43% know how much is in their pension pot and 45% not knowing how to check if an approach about their pension is legitimate.

If someone contacts you unexpectedly and says they can help you access your pension before the age of 55, the call is illegal and it’s likely to be a fraudster. You can report them to Action Fraud by calling 0300 123 2040 or visiting the organisation’s website.

You may be offered a tempting way to invest your pension fund – for example in a new hotel being built in an exotic location – but don’t fall for it.

Most of these offers are fake but can appear very convincing as they appeal to your wants and desires. Their aim is to get you to cash in your pension pot and transfer your money.

Once you’ve transferred your money into a scam, it’s too late: you could lose all your pension money, as well as face tax of up to 55% or huge additional fees.

You can significantly reduce your risk by only dealing with an FCA-regulated firm. This means checking the person who is giving you the advice and the firm they work for are both registered on the at register.fca.org.uk. Ensure you check your adviser’s identity too, they could be masquerading as a financial expert.

The Pensions Advisory Service also has an online tool to help you know if you have been scammed.

We hear horror stories of people losing their life savings, but it’s also important to remember that this is a rare occurrence. Always act on the cautious side, and if in doubt, ask a financial planner to check things over.

Here are my top 5 ways to avoid pension scams

  1. Don’t be harried, pressured or rushed into making any decision about your pension; take your time and get a second opinion if you’re in any doubt.
  2. Decline any unexpected pension offers, which may be made online, on social media or in a phone call.
  3. Check who you are dealing with before changing your pension arrangements, via the Financial Services Register or by calling the FCA helpline on 0800 111 6768 to see if the individual and firm you are dealing with is authorised by the FCA.
  4. Think about getting independent impartial information and advice.
  5. If it seems too good to be true, be honest with yourself: it is. Stay away from exotic and ‘exciting’ investments that promise outlandish returns.
 

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