How to avoid a Pension Scam

Who are the winners and losers?

Recently reports have been circulating that there are an increasing number of costly pension scams operating in the UK since Coronavirus hit. When considering your options for pension release, always ensure you conduct due diligence during your research, and only share details of your pension with companies authorised and regulated by the Financial Conduct Authority (FCA), and clearly displaying their reference number. For more information on how to protect yourself, please visit The Pensions Regulator’s guide to Pension Scams

If you follow these five steps, you won’t be scammed:

  1. Check that the firm you are taking advice from is FCA regulated. You can easily look them up on the FCA register
  2. Check how long they have been doing this for and ask what experience they have. Again, the FCA register will tell you their Status Effective Date
  3. Make sure the advice you receive is provided in writing and you are given time to digest that information, without being rushed or pressurised into making a rash decision
  4. Make sure you understand what you are doing and have been told about the downsides as well as the benefits – don’t be afraid to ask questions if you don’t understand. Even get a trusted friend or family member to look at the advice as well
  5. And be careful, if the investment advice sounds too good to be true, it probably isn’t true. Only invest in FCA regulated investments

Pension Liberation Scams

The Pensions Regulator, the FCA and HM Revenue and Customs have all issued warnings about Pension Liberation scams. They say that there is a high risk that by going ahead with one of these scams could result in you losing your entire pension fund and in addition to that loss, HMRC could implement penalties, charges and tax payments that have to be paid by you.

The Pension Liberation scammers are offering individuals under the age of 55 the ability to access their pensions early, but they typically offer 50% of the value of your pension fund as a cash payment.

Companies offering Pension Liberation schemes are likely to tell you they are exploiting a loop hole that allows you to transfer your pension fund abroad and then release funds. They may well be exploiting a loop hole; however, they may not be telling you that you are obliged to inform HM Revenue and Customs about your cash payment. The reason they don’t tell you is because you will probably be hit with a significant tax charge because your payment is considered to be unauthorised. If HMRC have had to contact you before you tried contacting them, they may well include penalties and interest payments in addition to the tax.

who are the winners and losers?

2015 pension rule change had many rushing to cash in their pension nest eggs at 55, but was it a good idea?

The changes made in 2015 to pension regulations, allowed UK Pension holders aged 55+ to access up to 100% of their Pension funds and take far greater control of their money, including how and when they took their pensions.

Our research over the past 11 years covering thousands of clients has shown that Pension Freedom has been a great benefit for some, but sadly, not for others and certainly shouldn’t be seen as an easy way to raise cash.

The Winners

For many this greater flexibility was a great thing. Either providing them with an immediate cash injection to their finances, maybe to clear unmanageable debts, or simply wanting to take control of their pension fund investment or to ensure their loved ones would inherit their entire pension.

  • Got advice from an FCA regulated firm, which ensured they didn’t pay any unnecessary tax on the money they released early
  • Only invested their pension fund into FCA regulated investments, thus ensuring they weren’t a victim of a scam
  • Ensured any death benefits were paid to those they loved
  • Benefited and got peace of mind knowing the advice they were given meant they were protected, by law
  • Had time to read the report they were sent without being hassled
  • Given the freedom to ask technical questions and have them answered in a way they understood

These people took their time to make the right decisions and have considered a wide range of factors.

They made sure the firm they were dealing with was FCA registered and had been around long enough to have the necessary experience required. They were protected by law and had rights of recourse.

The Losers

Others lost benefits, they paid unnecessary and unexpected tax bills and left nothing to provide for their retirement. Worse still, many have been the victims of scams and lost all or most of their life savings. Early pension release certainly isn’t advisable for most people.

  • Anyone that transferred their funds to a high risk non-regulated scheme and saw the value drop, or even worse, were the victims of a scam losing their entire fund
  • Took 100% of their pension without being told about the tax implications, then being hit with a significant and unexpected tax bill
  • Cashed in all their pension without being given advice about the consequences; now having to rely on the state pension to provide for them during retirement
  • Cashed in too much of their pension fund without advice, resulting in an unnecessary loss of their state benefits

Unfortunately, there are too many people who didn’t follow the simple steps outlined above and ended up wishing they had made better decisions.

Pension Scams in the news