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How to spot a pension liberation scam

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

Here in the UK, the phrase “pension liberation” usually refers to a type of scam. Here, fraudsters try to trick people into believing that they can access their pension funds before the age of 55. Although the 2015 Pension Freedoms allow people to access pension pots after this age, you cannot do so before it. Sadly, many people still fall victim to pension liberation scams in 2021. Our goal in this article is to help educate our readers so that they are not caught off guard.

Below, our financial planning team at Castlegate here in Grantham, Lincolnshire outlines some common pension liberation scams, methods they use and how to avoid them. We hope you find this content helpful. If you’d like to discuss any of these matters or your own financial plan please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585

Tactics have changed

Historically, pension scams used to primarily take the form of a fraudster setting up a workplace pension scheme and inviting people to join. From there, the members would be invited to take a loan secured against their pension. HMRC would then apply a tax charge to this unauthorised payment. By the time this materialised the member likely would have spent their “loan” and no assets would be in the scheme.

Scammers have largely moved away from this approach in 2021 since it involves giving money to the victim(s) and because of the risk of being jailed. To avoid these problems, a more common approach is for scammers to set up a dormant company. Afterwards, they can set up a small self-administered scheme (SSAS) with the victim target as the sole trustee. This person’s benefits are then moved over into this scheme, after enticing them with a “too good to miss” investment opportunity. Since the scheme is not regulated by the Financial Conduct Authority (FCA) there is no compensation, and it is difficult to prove in court that the scammer(s) gave advice on establishing the SSAS and its investment(s). The money is very difficult to take out, and over time may become completely eroded by exuberant fees and charges.

Here, it’s important to note that a SSAS is a perfectly legitimate type of pension scheme for many people. However, the main difference between this and a scammer using the structure is that the former will usually offer a professional trustee service.

Methods to watch out for

Pension scams are increasingly elaborate and often rely on devious techniques using digital technologies. As such, it is difficult to give a comprehensive list of fraudulent methods. However, here are some common ones to look out for:

  • A ban has been put in place to stop pension cold calling. However, it still happens – with many of the perpetrators based overseas. If you receive an unexpected call about your pension, from someone you do not know, be aware that they are likely breaking the law.
  • Use the FCA’s “flip the context” approach. Here, imagine that the offer was, instead, being made to you in an offline setting (in-person) such as during a trip to the supermarket. Would you accept a stranger’s advice? FCA research suggests that we are all 9x more likely to be scammed online than in a face-to-face encounter, so be careful.
  • Watch out for high promises. If someone promises you guaranteed (or near-guaranteed) returns, then this is often a sign of a scam. All investing involves risk.
  • Pension liberation. As mentioned at the beginning, if someone tells you that they can help you access your pension savings before you reach age 55, they are lying.
  • Pressure to act. An authentic, regulated financial adviser or planner will never push you to make a quick decision (e.g. citing “time-limited” availability). This is another red flag.
  • No FCA regulation. This is one of the first things to check about a person or company when speaking to them about your pension and/or investments. Unless they are under the FCA’s umbrella, you are potentially putting these at risk
  • Social media adverts or emails offering any of the above. Whilst cold calls are still used by scammers, pension fraud can still come at you in the form of unsolicited messages or adverts to your inbox and social media.
  • Disguised links sending people to fraudulent websites. If you get an email or message from an unknown/untrusted person containing a link, be very careful about clicking on it. One method used by scammers is to “dress up” the link to take you to another website (where they can steal your information).

Unfortunately, pension scams still occur and cannot be fully prevented. Whilst the possibility of you being targeted is unlikely, it is important to be vigilant given what is at stake.

Conclusion & invitation

If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585