Jan 13, 2016
The threat posed by pension scammers has grown exponentially since government reforms became effective last April. Here are three words your clients should watch out for when being approached about their pension
The government's pension freedom reforms gave defined contribution pot holders over the age of 55 unfettered access to the full suite of retirement income products.
Savers who would have typically bought an annuity in retirement are now able to withdraw their cash and invest it in a variety of complex products, leaving them vulnerable to scammers wanting to take advantage.
There are several awareness initiatives currently in operation, including The Pension Regulator's Scorpion campaign, the Financial Conduct Authority's ScamSmart campaign, and the government's Project Bloom.
However, worryingly, a recent survey found these campaigns were not getting through to consumers, many of who are still unable to spot pension scams.
Pension liberation scams have also become a bigger threat, whereby scammers target those below the age of 55 - the age at which your pension becomes legally accessible - with a view to 'liberate' their pension cash.
Here are the top three phrases that should "immediately ring alarm bells" when approached about a pension, according to ACA Pension Life, a campaign group currently trying to recoup £2bn in pension losses on behalf of savers. The selection is based on feedback from victims of the scams.
1) "Legal loophole"
"If anyone tells you there is a ‘legal loophole' that allows you to access part or all of your pension before the age of 55, and that there will be no tax to pay, they're lying and you should disengage immediately," said Angela Brooks of ACA.
2) "Sophisticated investor"
"Red flags should be hoisted" when being told you are a sophisticated investor or could be taught to become one for the purposes of accessing your pension, Brooks said.
'Sophisticated investor' is a term used to describe more experienced investors and it involves getting a certificate needed to be able to invest in unregulated, alternative products.
Being unregulated, these products do not afford you protection from the ombudsman of Financial Services Compensation Scheme, so you would lose all your money if things go wrong.
"If you are told you can transfer your pension free of charge, make sure you find out exactly what the long-term charges entail. There is no such thing as ‘free'," said Brooks.
Typically pension transfers will involve charges for advice, if taken, as well as asset management charges, which should be explicitly stated.
There will also be a tax implication as only 25% of your total pension savings are tax-free to withdraw