Will pension scams clampdown really protect savers and investors?

“Hello! I’m just calling about the accident you were involved in last week…”

Most of you have probably received a cold-call of this nature at some point in the past few weeks, with the firm on the other end of the line looking to make a claim on your behalf.

Pre-recorded messages saying you are in line for a big Payment Protection Insurance (PPI) payout from your bank are also common, with firms increasingly using electronic communications – such as emails and text messages – to target people.

But in recent years nuisance communications relating to pensions have been on the increase, with scammers using a variety of tactics to sell ‘early access’ schemes – and risk being hit with a whopping tax penalty from HM Revenue & Customers (HMRC) - or offering exotic investment ‘opportunities’ boasting outlandish returns. Often these investment opportunities are extremely high risk or simply do not exist.

Last month, the Government confirmed it plans to press ahead with a series of reforms designed to protect savers from these fraudsters.

But what exactly is going to happen? And will the changes really put a stop to scammers attempts to get people to part with their retirement savings?

Why is the Government targeting pension scammers?

The pension freedoms, announced by former Chancellor George Osborne in March 2014 and introduced in April 2015, radically altered the way people could draw on their retirement savings from age 55.

Where securing income through an annuity was previously the default option for most savers, a whole new world of choice was thrown open.

Capped drawdown rules that previously restricted the amount people with less than £20,000 in secure retirement income could take from their pot each year were lifted, allowing anyone to withdraw their entire defined contribution (DC) pension from age 55 if they wanted to.

This extra flexibility created a window of opportunity for criminals to go for people’s pensions, either by claiming the new rules allow you to access your savings before age 55 or attempting to coerce savers to withdraw some or all of their pot and invest it in a dodgy investment scheme. In this environment, people clearly need extra protection.

What has been proposed?

The headline reform you might have read about in the papers means cold-calling in relation to pensions will be banned in the UK.

The Government intends for the ban to cover a wide set of circumstances, including: 

• Encouraging savers to release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member;
• Persuading individuals to flexibly access their pension savings in order to invest in inappropriate investments;
• Encouraging individuals to transfer their pension savings in order to invest in inappropriate investments.

The ban also includes unsolicited text messages and emails, so if anyone you don’t know tries to contact you out of the blue about your pension, they will be breaking the law. Those caught flouting the rules could face fines of up to £500,000.

Away from this headline intervention, the Government is looking to make life harder for scammers in a couple of other ways.

Firstly, extra powers will be given to pension schemes to block suspicious transfers – specifically where there is no employment link between the member and the scheme they are transferring to.

Secondly, policymakers want to make it harder for fraudsters to abuse Small Self-Administered Schemes (SSASs) by preventing ‘shell’ schemes being set up where the employer is deemed ‘inactive’. These shell schemes are often used as a conduit by pension scammers.

When will the changes be introduced?

While the Government has signalled its intent to introduce these measures, the question of when all this will happen remains unanswered.

The latest consultation response talks of working on the practicalities of the measures with the industry and only commits to implementing the proposals “when Parliamentary time allows”.

This could, of course, be soon but the fact the Government hasn’t set a firm date is worrying. Progress has already been slowed by Theresa May’s decision to call a snap general election, and given Brexit is draining time and resource from Westminster there is clearly a danger of further delay.

It’s also worth remembering that if and when these measures are introduced, they still won’t stop cold-calling altogether – never mind putting an end to scam activity.

The Government has also stopped short of banning cold calls that relate to investments, creating a potential loophole which scammers may look to exploit. And clearly the UK ban doesn’t cover cold-calls that originate from abroad, so determined fraudsters will continue to find ways to attack people’s pensions.

Ultimately it is up to individual savers and investors to be savvy enough to spot the signs of a scam and ask searching questions of anything that sounds too good to be true.

How to protect yourself from falling victim to a pension scam

1. If someone calls you out of the blue to talk about your pension, hang up!

If you receive a phone call from someone you don’t know claiming to offer an incredible investment opportunity for your savings or a ‘pension review’ service, hang up immediately! Equally, don’t respond to text messages or emails from someone you don’t know claiming to hold the key to retirement nirvana. In all likelihood this will be a scammer phishing for victims, so whatever you do don’t take the bait.

2. Don’t deal with unregulated ‘advisers’

While telephone, text and email remain the weapons of choice for the modern con artist, some continue to knock on doors; usually targeting older people they think are more likely to be vulnerable. So make sure you only deal with FCA-regulated advisers – this is particularly important as if you are sold an investment by an unregulated individual, you won’t have recourse to compensation. You can check if someone is a regulated adviser by searching the FCA register.

3. Be wary of overseas investments

Scammers often promise double-digit returns through exotic investments in far-flung locations. So if you’re told you can get 10%+ annual returns from a teak plantation in South American or a hotel room in Spain, tread carefully and do your due diligence. Often fraudsters will advertise investments in an asset that doesn’t exist or hasn’t yet been built, so don’t hand over your cash unless you’re 100% confident you’re being sold a genuine, bona fide investment.

4. Watch out for schemes offering ‘guaranteed’ returns

Nothing, and I mean nothing, is guaranteed when it comes to investments. The closest thing you’ll get are Government bonds and final salary pensions – ironically the very things scammers are often trying to part you from. So if a company you’ve never heard of says it can deliver GUARANTEED returns of any amount, don’t touch them with a barge pole.

5. Don’t rush to make a decision

Ultimately if you want to invest in something high risk or unregulated, there is nothing to stop you. But don’t be forced into doing something you aren’t comfortable with and might regret by a pushy salesman desperate to boost his own commission. Your pension might just be the most valuable asset you ever own, so invest it wisely.

Tom Selby, AJ Bell Senior Analyst