How To Spot A Pension Scam

Plenty of financial experts are warning retirement savers about pension liberation scams, but few offer advice about how to spot a fraudster.

Pension scams come in many different guises, but tend to have a common theme – and here are some of the points about accessing pension cash that should start ringing alarm bells for pension savers.

£500 million snatched by fraudsters

The Pensions Regulator reckons more than £500 million has been scooped up by pension scammers in the past couple of years and is warning retirement savers to be careful in their dealings with cold-calling salesmen who have eyes on their cash.

  • Pension loans – Borrowing money from your pension is not legal except for special arrangements under a small self-administered scheme (SSAS), so anyone offering this facility is probably promoting some kind of scam
  • Offshore investments – Sending cash to invest offshore, especially in property or commodities, is generally a scam. Over recent years, these have included esoteric deals offering fabulous returns from resort developments, land banking, plantations and carbon credits, to name but a few
  • Free pension reviews –IFAs do not cold call or send out unsolicited texts or emails. If you receive one, the sender is probably a scammer trying to lure you into transferring your pension so they can swipe a fee of your investment
  • Accessing pension cash before you’re 55 – This is only available in very limited circumstances, like terminal illness or life-changing injuries. An advisor suggesting this can be done is undoubtedly involved in some type of pension scam
  • Switching a pension into a company you control – Advisers suggest this so you can loan yourself the money in the pension fund, but can charge fees of up to 30% of the value of the pot
  • Transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS) – Switching pension cash offshore is perfectly OK if you intend to become an expat, but against the rules if you plan to stay in the UK and just make the transfer to get at your pension savings 

Other tricks to watch for from pension scammers include a lack of information about tax penalties from HM Revenue & Customs (HMRC) for accessing a pension if you are under 55.

Hidden tax costs

Although taking the cash is not illegal, taking the money without paying penalties to HMRC is.

Those penalties can range from at least 55% of the fund value upwards and if the tax man does not catch up with you for some time, interest on the debt as well.

If you have settled for some loan arrangement through a company of which you are also a director, you also have to be aware of duties to file accounts and tax returns, and the costs and penalties for not doing so.

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