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Avoiding pension & investment fraud in a pandemic

29 July 2020

Avoiding pension and investment fraud in a pandemic

Coronavirus has touched all our lives in ways that we could never have dreamed of a year ago.

The uncertainty has been reflected across the financial markets resulting in lower interest rates and stock market instability. This is turn has resulted in lower than projected returns for pension investors and personal savers. The financial situation linked to personal challenges during this time may make savers more vulnerable to fraud. In essence the perfect storm and one that criminals are likely to exploit for their own cynical gain.

What does this mean for our personal savings and pension?

We work all our lives dreaming of a comfortable retirement free of everyday stress and the opportunity to do the things that a busy working life won’t allow.

Many of us view our hard earned pension as the means to fulfil a happy retirement but there are fraudsters out there that have other ideas and they are using the current market instability and low interest rates as a “hook” to further their crimes often offering attractive terms and interest rates for high risk or bogus investments.

Without doubt pension liberation and closely associated investment fraud, is one of the most impactful and cynical crimes that a victim may suffer. In most instances it is life changing as a victim of such fraud will be of an age that they are unable to financial recover from what is often a significant financial loss meaning that their pensionable years will be challenging often forcing a victim to return to employment or drastically change their retirement plans.

In 2018 over 180 people reported to Action Fraud that they had been the subject of pension fraud. Those who reported pension fraud lost an average of £82,000 which is estimated to take most of us on an average income 22 years to earn a pension fund of that amount.

As with all fraud, pension fraud is gradually evolving. The focus of the fraud is moving away from persuading a person to reinvest their pension fund in another fund, which might promise high returns but is risky or bogus, into opportunities to invest their pension monies in products which again are high risk or bogus – a subtle but important difference in emphasis.

So often with frauds of this type the victim does not realise the product is worthless until they try and liquidate the asset or they question the lack of return on their investment. In reality this might take years depending on the nature of the product and how it was sold.

How pension / investment fraud works

Pension fraud and investment fraud have similar characteristics, fraudsters have moved away from pension cold calls, which were made illegal on 9 January 2019, but will advertise on sites such as Facebook, small ads in reputable publications or even initiate contact through promotions at the factory gate;

Those who conduct such frauds are often articulate, personable and financially knowledgeable, with credible websites, testimonials and materials that are hard to distinguish from the real thing.

They may use the current uncertain climate to promote attractive offers, normally in the form of high interest rates or impossible to achieve returns on investment, to entice a person to invest all or a substantial part of their pension pot earned over a lifetime of hard work. The monies may then be:

  • Invested in unusual and high-risk investments like overseas property, renewable energy bonds, forestry, storage units;
  • Invested in more conventional products, but within an unnecessarily complex structure which hides multiple fees and high charges payable to the fraudster or their company by way of commission; or
  • The product they offer is completely fictitious/worthless and the fraudster simply takes the money and walks away.

The warning signs

The fraudster will often:

  • Offer free pension reviews;
  • Promote higher returns - guarantees they can get the potential victim better returns on pension savings or investments;
  • Offer to help to release cash from a pension, even though the potential victim is under 55 (an offer to release funds before age 55 is highly likely to be a fraud);
  • Deploy high pressure sales tactics - the fraudsters may try to pressure a potential victim with ‘time limited offers’ or even send a courier to their door to wait while they sign documents;
  • Promote unusual investments - which tend to be unregulated and high risk, and may be difficult to sell if the victim needs to access their monies;
  • Promote complicated structures where it isn’t clear where the money is being invested or the nature of the investment;

Be Alert and Keep Safe – be “ScamSmart” (FCA and The Pension Regulator campaign 2018-19)

  • The ScamSmart website, gives consumers tips on how to spot the techniques used by fraudsters and hosts the FCA Warning List. This is a tool that helps users find out more about the risks of a pension opportunity and search a list of firms that we know are operating without FCA authorisation.

Reject unexpected offers

  • Be wary of offers of free pension reviews. Professional advice on pensions always comes with a fee as it requires expertise and is time consuming to ensure the right and appropriate advice is provided. A free offer out of the blue from a company should always be treated with suspicion.
  • Word of mouth can also be a danger as a person may be unaware they have been a victim of fraud but may entice their friends and work colleagues to invest. Never be talked into an investment always check everything independently of a friend, colleague or family advice.

Undertake due diligence

  • Check the Financial Services Register to make sure that anyone offering advice or other financial services is authorised by the Financial Conduct Authority (FCA), and that they are permitted to provide those services in relation to pensions. If in doubt or for verification call the FCA Consumer Helpline on 0800 111 6768;
  • Check they are not a clone - a common fraud is to pretend to be a genuine FCA authorised firm (called a ‘clone firm’). Always use the contact details on the Register, not the details the firm or advisor provides..

Don’t be rushed or pressured

  • Take time to undertake due diligence – even if this means turning down an ‘amazing deal’. Be wary of promised returns that sound too good to be true and don’t be rushed or pressured into making a decision.

Take impartial advice

Always take impartial financial guidance and advice before changing pension arrangements.

  • The Pensions Advisory Service, part of the Money and Pension Service, provide free independent and impartial information and guidance and offers free information to consumers about how to detect pension fraud over the telephone and online;
  • If you are over 50 years and you have a defined contribution pension, Pension Wise offers pre-booked appointments to talk through retirement options;
  • Financial advisers, always use an accredited financial advisor that is regulated by the FCA and is independent from the company that may have offered the pension review.
  • Never use the financial advisor that may be suggested by the company offering the financial product.

During these unprecedented times, and in order to help protect consumers, the regulators are sending letters to those seeking to transfer their pension funds warning them to stop and think before making what could be a life changing move.

This is a welcome move and one that will help protect many savers but always remember fraud damages lives be ScamSmart.


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