Clever scammers offering get-rich-quick investments have tried to trick 80 per cent of investors aged over 55 out of their savings in the past year.
Hard-nosed fraudsters target the over 55s because they know they have access to their pensions and often need advice about the best way to invest their money
But as scams become more sophisticated, it’s becoming harder to sort the authentic from the fake.
One of the scammers main tricks is the ‘guaranteed’ return, promising investors above-average profits for handing over their cash.
Read on to find out how the scammers work and what you can do to protect yourself from their weasel words.
Tricksters Trigger Millions Of Scams
A glimpse of the statistics paints a worrying picture at the vast scale of the scammer’s deception:
- Scammers have targeted just under 80 per cent of over 55s in the last year
- One in four wouldn’t assume an investment opportunity was a scam if it offered a fixed ten per cent profit a year, which is way above average investment returns
- One in six over 55s has no clue what investment return to expect, so they don’t realise some investment opportunities they are offered are bogus
The big issue is the disconnect between our perception of our ability to recognise fraud from reality.
As we get older, we generally think we’re savvier, and 89 per cent of the same over 55s group were confident they’d know a scam when they saw one.
Younger people acknowledge how complex it can be to identify whether a potential investment is a red flag, with only 68 per cent being sure they’d know the difference between an incredible investment return and fraud.
Pension Fraud Explained
Unfortunately, investment scams are growing in number, mainly targeting older people seeking opportunities to make their retirement income stretch further.
The Times reports that between April 2020 and March 2021, over 23,000 people lost an average of £24,000 each to pension fraudsters. That adds up to a massive £554 million of stolen savings.
In the UK, total losses suffered due to investment scams by advice firms regulated by the Financial Conduct Authority has grown three times since 2018, with £570 million lost in the last year.
There are many different scams, but most try to attract people with promises of cash payments upfront, time-sensitive deals with limited availability, or high returns at guaranteed rates far above the norm.
Usually, a fraudster will try and convince you to cash in your pension or withdraw a considerable lump sum and hand over the funds for them to invest on your behalf.
It’s not always apparent that it’s a scam.
Many criminals will provide website details, email addresses and literature that look legitimate – so you must do your homework.
But the key sign to look out for is when someone you’ve never dealt with contacts you out of the blue, offering free pension or financial reviews or consultations.
Unless you are in ill-health, it is improbable you can unlock a pension before the age of 55, so any contact offering a pension loan or a way to access your finances early is suspicious.
The Fight Against Fraudsters
Several government initiatives target these scams but don’t move fast enough to tackle new scams as they emerge.
Here are some of the programs in place or under review:
- The Pension Schemes Act 2021 gives trustees the power to block pension transfers if they see evidence of potential fraud.
- The Online Harms White Paper, published in April 2019, was taken forward as a draft Online Safety Bill in the May 2021 Queen’s Speech. Draft legislation is due to be reported by December 2021.
- The Financial Conduct Authority regulates registered advisers and pension providers and publishes advice and guidance to help individuals avoid exposure to scams.
Older people are adept at recognising common scams, with approximately 93 per cent knowing that cold calls about pension reviews are probably fraudulent.
A further 96 per cent know that they should be cautious if under pressure to make investment decisions.
However, scammers have caught on and have changed tactics, such as social media, where people aren’t on guard and are more susceptible to being conned.
How to Avoid Investment Fraud
There are four simple ways to identify probable scams and ensure you don’t make any hasty decisions enticed by the appeal of unrealistic returns.
- Don’t accept any offer you don’t expect. Any cold marketing, social media targeted ads or emails offering an opportunity to grow your pension are likely scams
- Ensure you’re dealing with FCA regulated, properly registered companies. For example, the FCA must authorise anyone offering financial advice, so check your cold-caller on the FCA register before responding.
- Take your time, and never allow a salesperson to push or rush you into making decisions that will have a long-term impact on your financial security.
- Seek a second opinion from a finance professional, lawyer or accountant you trust if you have any doubts
If you’re unsure whether a pension or investment is genuine, contact the free government website Money Helper to discuss any offers.
You can report suspected scams to Action Fraud or the FCA through their online reporting form.
There’s no rule against offering guaranteed returns, but providers don’t do so because they cannot predict the future. Most pension funds are third-party schemes bundled under a product wrapper. As the provider has no control over the way investments are managed, they will not make promises about their returns.
Any other investment carries an inherent risk vs reward calculation, and even the most established fund manager can’t make rock-solid promises about how your fund will perform.
That’s because any investment is subject to volatility, which depends on which sector you’re investing in, and events and fluctuations that make those returns rise and fall.
There are undoubtedly low-risk pension investments, but you should approach any offer of guaranteed returns with extreme caution.
The quickest way to make sure any financial services provider is authentic is to check the FCA register.
This database holds information about every financial organisation registered with the FCA and appropriately regulated.
However, please note that caution is still critical since some investment scams are reported from regulated firms, so being FCA authorised isn’t an absolute assurance that a product is genuine.
If you’re worried that you’ve been tricked into an investment scam, you should contact your pension provider immediately.
They might be able to prevent a transfer from going through.
Next, report the fraud to FCA Scam Smart and Action Fraud, who will give you a crime reference number and share updates about your case through an online system.
A further option, particularly if you have transferred your pension funds and can’t stop the transaction going through, is to book an appointment with Money Helper.
It isn’t always possible to recover all of your lost funds. Still, you might be able to recover some and potentially lodge a compensation claim, so it’s essential to explore the options.
Investments work on a balance, so a good financial adviser will always discuss your risk exposure and what you’re expecting from any investment product you choose.
A long-term, low-risk investment offers more modest returns but isn’t exposed to higher risk, and therefore it’s unlikely you will lose your funds.
Higher return investments always carry a higher risk.
If you opt for a short-term, high-risk but high-reward investment, you stand to earn substantially more, but with a corresponding increased risk of loss.
While some scams target older people looking to boost their retirement budget, criminals also approach younger people with fraudulent investment proposals.
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