Savers struggling in coronavirus crisis warned against pension scams

Savers who are under financial pressure or have lost jobs should beware scammers tempting them to tap pension pots early or switch them into dodgy investments.

Taking money from pensions before you are 55 is especially hazardous, because the taxman slaps a heavy penalty on early withdrawals and the rest of your pot may then be lost in high risk investments or stolen outright.

To help protect people vulnerable to scammers while in desperate financial straits due to the coronavirus lockdown, former pensions minister Ros Altmann has proposed a six-month freeze on pension transfers.

‘With so many people at home or out of work, there is a greater risk of cold-callers reaching more targets and, following the latest market mayhem, a rising concern about “too-good-to-be-true” fraudulent investment offers finding willing customers who will transfer their secure pension and lose their life savings,’ she said.

‘In the interest of customers, putting transfers on hold could protect more people from becoming the latest victims.’

Meanwhile, final salary pension schemes will be struggling to work out accurate transfer values anyway in the current market turmoil, according to Lady Altmann.

And a six-month hiatus on transfers would give all pension schemes valuable time to go back over people’s records and undertake data cleansing to improve their accuracy, she adds.

But there was pushback against Altmann’s call from online financial platform Interactive Investor, which said it was ‘ludicrous and anti-competitive’ and would take the only power that investors have – the freedom to move – out of their hands.

Chief executive Richard Wilson said: ‘In falling markets, one of the few tools investors have is the ability to control their costs, and if necessary, find a cheaper provider.

‘Investors do not like having their assets locked up – if we’ve learned anything post Woodford, and after several more property fund suspensions, we ought to know that.

‘Furthermore, suspend pension transfers for a period, and expect a significant backlog on the other side, which is terrible for consumers.’

Following the coronavirus outbreak, the Financial Conduct Authority has delayed work on banning financial advisers from offering ‘no transfer, no fee’ deals to savers looking to ditch final salary pensions.

The crackdown on the ‘obvious conflict’ of advisers only getting paid if a transfer goes ahead followed regulators’ damning report showing two in three savers seeking advice are told to abandon valuable final salary pensions.  

Savers menaced by pension sharks

Victims of heartless pension scams reported losing an average of £82,000 in 2018, according to Action Fraud figures.

Pension freedom reforms, which allow over-55s to access their entire retirement savings pots in one go, have made this money a target for criminals.

Fraudsters now tend to target over-55s who don’t face extra hurdles in taking their cash, but so-called ‘pension liberation’ scams involving younger people still occur. 

HMRC levies stiff charges on under-55s making early pension withdrawals – 40 or 55 per cent depending on how much of a pot is cashed – even if they were duped by fraudsters. 

Savers should be on their guard against a surge in scam activity during the economic uncertainty caused by coronavirus, with those worried about unemployment potentially being targeted with ‘early access’ pension offers, says AJ Bell senior analyst Tom Selby.

‘Scams claiming to allow people early access to their retirement pots could come back to the fore if we see a surge in unemployment placing immediate pressure on household incomes.

‘While getting access to your pension before age 55 may be tempting during this period of uncertainty, doing so will as a minimum see you hit with a 55 per cent unauthorised payment charge from HMRC in the first instance.

‘At best you’ll then be subject to sky high fees by the fraudster as well, meaning you only get a fraction of your pension back and your retirement prospects are left in tatters. Many people lose everything as a result of these types of scams.’

As the coronavirus crisis was breaking this month, MPs launched a new all-party parliamentary group to combat pension scams and give victims a voice. 

How do you protect yourself?

Tom Selby of AJ Bell offers the following five tips to avoid becoming a pension scam victim.

– Watch out for investment ‘opportunities’ that appear out of the blue and sound too good to be true. Schemes offering high guaranteed returns are often at the heart of pension and investment scams.

– If you are contacted out of the blue about your pension by someone you do not know, either by phone, email, text message or on social media, do not respond.

– Be extremely wary of anyone offering ‘free advice’, a ‘free pension review’ or ‘early access’ schemes. Advice is never free and you are not allowed to access your pension before age 55 unless you have serious health issues.

– If you are speaking to an adviser about your pension, make sure they are regulated and check their credentials out via the FCA register. 

– Don’t be rushed or pressured into making a decision about your pension – such tactics should set off a big red warning light in your mind and are often indicative of a scam.

Read more here about common scam tactics and how to detect fraud. The FCA contact centre to see if the firm you are dealing with is authorised can be reached on 0800 111 6768. The FCA warning list, which will help you check if an investment opportunity is a scam, is here.