Protect your pension savings

The pension freedoms that came into effect in April 2015 have created choices, allowing people to make better use of their money in retirement. But, unfortunately, fraudsters are among the beneficiaries - so here are two of the biggest scams to watch out for.

  1. ‘Free pension review’ scam

    Many people know that, as they approach age 55, they are entitled to free guidance on how to make the most of their retirement savings. Regulators have warned against scammers exploiting these changes by cold calling people and offering ‘free pension reviews’, sometimes claiming to be from the Money Advice Service, which does provide much of the guidance available under the system.

    These reviews try to persuade people to move money saved in their existing pension to a self-invested personal pension (Sipp), or a small self-administered scheme (a type of occupational pension with fewer than 12 members).

    The money is then typically invested in unregulated investments such as overseas property developments. Not only are the returns on these unreliable, but the investments are unregulated, so victims don’t have recourse to the regulator or the Financial Ombudsman Service if things go wrong.

    And, even if the investments these pension fraudsters sell don’t prove disastrous, they take huge charges out of people’s savings when transferring their money from their existing pension arrangements.

  2. The pension liberation scam

    It works like this. A pensions company sends you a text saying something along the lines of ‘Unlock the value of your frozen pension and get cash back today’. You respond, tempted by the idea of getting hold of the thousands of pounds that you’ve saved over the years, and you get a call from the company saying that it will do the legwork for you.

    Such firms may offer a cash incentive or loan to move your money to another scheme, or offer to get all of your pension savings straight away. But you’ll be charged a hefty ‘arrangement fee’ for doing this – somewhere between 10% and 30% of the size of your pension fund. Moreover, what the companies often don’t tell you is that there’s an enormous tax charge for accessing your pension early – 55% of the money you take out.

    So, if you were looking to ‘liberate’ £100,000 from your pension, you might end up having to shell out £30,000 in fees to the company, leaving you with just £70,000. A couple of weeks later, you’ll get a letter from HM Revenue & Customs (HMRC) demanding 55% – not of what you’ve got left, but of what was originally in your pension. So you have to pay another £55,000 – leaving you with just £15,000. That’s an 85% hit to get early access.

    There are no loopholes that will help you escape this trap. Pension liberation companies are full of tall stories about elaborate arrangements that will enable you to get round the tax charge – none of them actually works. In the worst case, you may not see your pension savings at all.

What you can do

No reputable pension adviser will cold call you and attempt to talk you into a pension review, let alone into transferring your money elsewhere. If you receive such a call, hang up the phone.

If you do have doubts about an adviser, check out their credentials with the Financial Conduct Authority. You could also ask your current pension provider whether it has had prior dealings with such a firm – many scams have been foiled by the intervention of pension companies keen to protect their customers.

The simple way to avoid being caught out by pension liberation con artists is to refuse to have anything to do with this sort of activity.

Find out more

For more information on how to find an independent financial adviser, visit our money pages.

Which? members can call the Which? Money Helpline, who can help you understand your pension options.

We’re urging the government to take the lead and ensure companies safeguard us all from scams. Sign up to support our campaign.

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