George Osborne’s pensions freedom reforms have spurred a positive revolution in UK retirement saving. People are no longer shovelled into the locked box of an often poor-value annuity contract, and instead have near-total flexibility over how they spend and invest their hard-earned pension pot.

There is, however, a darker side to the new rules. Fraudsters are increasingly targeting elderly, often vulnerable savers through scams which often leave the victims penniless. AJ Bell analysis of City of London Policy pension fraud figures shows that, in the six months after the freedoms were launched, some £13.3m of fraud losses were reported.

Losses treble

To put that in context, that’s almost three times the £5.4m losses recorded during the same period a year earlier.

It’s worth remembering that these figures don’t include investment scams, with some estimates suggesting the true figure for pension-linked scam losses runs into the hundreds of millions.

The Government has recognised this as a problem and will legislate to ban cold-calling for pensions – something AJ Bell has been campaigning for this year.

In addition, policymakers plan to make it harder for scammers to set up fraudulent vehicles in the first place, and hand pension providers greater power to protect members by blocking transfers to dodgy schemes.

These reforms will be disruptive but won’t put an end to pension fraud, so you still need to be on guard when deciding how to spend and invest your retirement pot.

Top tips

Here are my top tips to avoid falling victim to a scam:

• If it sounds too good to be true, it probably is

Most scams attempt to lure savers in with investments offering outlandish, sometimes ‘guaranteed’, investment returns. This should set off immediate alarm bells. Common investment ‘opportunities’ to be wary of include storage pods, car parking spaces and exotic offshore projects which may never materialise.

• If someone says you can access your pension before age 55, they’re lying!

Government rules only allow you to access your pension from age 55 unless you are in ill-health. If you access your money early in any other circumstances, it will be treated as an unauthorised payment and you’ll be hit with a huge 55% tax charge from HMRC.

• Do your due diligence

If you are determined to go ahead with a high risk investment, do your homework first. Is the company offering the investment regulated by the FCA? Who are the directors? How can they justify the returns they promise? If you’re in any doubt at all steer clear or, at the very least, speak to a regulated financial adviser.

Tom Selby

Senior analyst AJBell

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