What to look out for to protect your pensions
There has never been more choice for how Britons can access their retirement benefits.
While this is generally welcome, it has been accompanied by increasingly sophisticated pension fraud.
Most people see pension scams as deliberate criminal efforts to steal pension funds, but they can also take the form of ‘mis-selling’ from advisers, whereby pension holders are persuaded to transfer retirement benefits into inappropriate and/or high-risk investments.
Make sure you know how to spot the warning signs and protect your pension benefits without missing out on suitable opportunities.
How common are pension scams?
The Pension Scams Industry Group found around one in eight pension transfers in 2018 was potentially fraudulent – putting approximately £4 billion of UK pension funds at risk.
Pension transfers present a key opportunity for scammers. ‘Defined benefit’ (‘final salary’) transfers can be particularly lucrative, as some transfer values today are worth hundreds of thousands of pounds. And, while expatriates can unlock tax, estate planning and currency benefits by transferring UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS), this is another target area for fraud.
There can be significant advantages in transferring UK pensions – especially if you are resident abroad – but it is crucial to take extreme care and seek regulated, personalised advice before taking any action.
What are the warning signs?
Although pension cold calling is now banned by the UK government, many scams still start this way. As well as an unsolicited call or text, you could be contacted in person, online or by mail.
Other tell-tale signs include:
- Offers to access to your pension before the age of 55 (‘pension liberation’).
- Unusually high and/or guaranteed returns.
- Time-limited offers and cash incentives (e.g. ‘commission rebates’).
- Exotic investment opportunities – recent examples include plantations, storage pods, biofuels and even truffle trees.
Remember: no investment is guaranteed, and once you have signed over your pension, it is too late. You could not only lose your funds, but potentially face a UK tax bill of 55% (plus penalty fees) for breaking the rules.
Also, beware of unregulated companies offer pension services. Whether they aim to defraud you or not, these are unprotected investments that provide no compensation if things go wrong.
Four key ways to protect yourself
- Beware of anyone you don’t know contacting you out of the blue for a pension review, whether by phone, email, online, mail, on social media or in person.
- Thoroughly research who you are dealing with before changing your pension arrangements. Check the ScamSmart website – www.fca.org.uk/scamsmart – and the online FCA register to confirm if an adviser is regulated or on any warning lists.
- Never sign anything under pressure and without fully understanding what you are getting into.
- Take regulated professional advice.
Even with authorised advisers, check for quality. Make sure your pensions adviser carries out a high level of due diligence and communicates clearly about your range of options – and the associated risks – while being transparent about costs. They should take account of your particular needs, objectives, personal circumstances and risk appetite to find a solution that is right for your retirement needs.
For expatriates, it will be beneficial to talk to an adviser with experience of the tax rules in both the UK and Spain to take advantage of locally compliant, tax-efficient opportunities.
It can only take a moment to lose a lifetime of savings, but with careful planning and quality, expert advice, you can both protect and make the most of what you have for years to come.
This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.