Looking after your pension starts with avoiding scams

While expatriates can benefit from QROPS or ‘final salary’ pension transfers, these can be targets for pension scams. See how to spot the signs and protect your retirement savings without missing out on suitable opportunities. 

While this freedom is generally welcome, unfortunately it has brought a sharp increase in pension scams attempting to defraud people out of their retirement savings.

British police revealed around £43 million was lost to scammers in the three years that followed the government’s 2014 pension freedoms announcement – a record £8.6 million in March 2017 alone. However, pension industry figures estimate that true losses, including unreported cases, could actually exceed £1 billion.

Citizens Advice UK estimate a staggering 11 million people received unsolicited calls or texts about pension services just in 2015/16.

Not only are scamming attempts widespread, their tactics can be highly sophisticated and convincing. A Citizens Advice survey revealed only 12% of people who were confident they would be able to spot a scam were able to do so. That means nine out of ten people missed the common warning signs.

Scammers look for opportunities to separate you from your pension funds, most commonly through transfers.

‘Defined benefit’ or ‘final salary’ UK pensions are particularly lucrative, as the unusually high transfer values being offered by some providers can amount to hundreds of thousands of pounds. Transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) are also targeted. For many British expatriates, a QROPS provides a suitable way to bring their pension with them and unlock tax, estate planning and currency benefits.

There can genuinely be significant advantages in transferring UK pensions, but you should take extreme care to do what is right for you while avoiding falling foul of scams. It is crucial to explore all your options and seek regulated, personalised advice before taking any action.

While around two in five pension scams start with a cold call or text, they can also stem from unsolicited contact in person, online or through the post.

Tell-tale signs include offering access to your pension before the age of 55 (‘pension liberation’) or unusually high and guaranteed returns, typically over 5%. Some include cash incentives, such as ‘commission rebates’. They often offer unusual or ‘exotic’ investment opportunities; recent examples have included vineyards, storage pods and even truffle trees.

Generally, if it sounds too good to be true, it probably is; no investment is guaranteed. Once you transfer your pension, it is too late. You could not only end up losing some or all of your pension benefits, you could face a UK tax bill of 55% plus penalty fees.

Something else to be aware of is that many companies offering pension services are unregulated. Whether they aim to defraud you or not, these are unprotected investments that risk losing your money, with no opportunity for compensation if things go wrong.

Be extremely suspicious of anyone contacting you out of the blue offering a ‘free pensions review’. Before giving out your personal details, check the ScamSmart website (www.fca.org.uk/scamsmart) and thoroughly research the person or company you are dealing with. A simple online search can reveal whether an adviser is regulated or on any warning registers. You could also look for consumer reviews, ask around your local community and follow up references. In any case, do not sign anything under pressure and without fully understanding what you are getting into.

Whether you are a British resident or not, you should take professional advice and use a provider that is authorised and regulated for the conduct of pension business by the UK Financial Conduct Authority (FCA).

All regulated advisers should carry out a high level of due diligence when recommending the full range of options for your particular circumstances.

Even with authorised advisers, make sure you still check for quality. An FCA study of pension ‘mis-selling’ concluded that less than half of people transferring final salary pensions did so as the result of ‘suitable’ advice. In practice, many people benefit more from staying put and receiving a guaranteed retirement income for life than cashing-in for a one-off payment. Worse still, the FCA found only 35% were given good advice on where to reinvest their transferred funds, “opening up the risk of pension savings ending up in inappropriate or scam investments”.

Recently, a US advice firm was penalised $8 million (£6 million) by the national regulator for unscrupulous overseas transfer services. Having targeted expatriates with UK pensions in the USA through social media sites, they were found guilty of enticing them to transfer to a QROPS, regardless of whether it was right for them, and being misleading about the tax benefits. They were also taking commission fees of up to 11% of the transfer value over ten years without making this clear.

Make sure your adviser puts your interests above their commission. They should communicate clearly about your full range of options and the associated risks while being transparent about the costs involved. A good adviser will take account of your needs, objectives, personal circumstances and risk appetite to find a solution that is right for you, wherever you are resident. 

For many people, pensions play a key role in determining their financial security through retirement, so getting it wrong could have serious consequences. It can only take a moment to lose a lifetime of savings, but with careful planning and suitable professional advice, you can both protect and make the most of what you have for years to come.