Financial crime is booming in the pension and investment sector. Based on recent figures from the City of London Police, investment fraud is a high-growth venture with unlimited upside potential.
Here are the numbers:
Quarter one of 2016/2017 £23 million
Quarter one of 2017/2018 £30 million
Quarter one of 2018/2019 £51 million (a 70% rise on the year before)
In the last full year (2017/2018), investment fraud losses came to £167 million.
These are the reported numbers. Some people are too embarrassed to admit their losses and they go unreported. This makes the problem worse.
Who is most at risk of fraud?
The average age of a pension fraud victim is 57, when people are beginning to plan and prepare for a post-work lifestyle. This is the period when dreams are planned and round-the-world trips are mapped out.
Why the huge increase in fraud?
From April 2015 it became possible for people to draw their entire pension pot from age 55, a temptation to access money that had taken decades to accumulate.
Cold-calling has added to the problem, as vulnerable people are tricked out of their savings. HM Treasury had planned to introduce a cold-calling ban from June 2018, but this was recently pushed back until the autumn. Added to this, many call centres are offshore and not policed.
Another element is the need to build a larger retirement pot to seek out high returns in an era of a low interest rate on savings. Fraudsters plug into this desire and create bogus schemes to attract the innocent.
Cyber-crime is rampant, with Action Fraud detecting 12,300 cyber-crimes in six months, as victims lost £28 million. Hacking of social media was the primary reason for people reporting cyber-crime, which is often committed by criminals who don't come into contact with their victim. Half of all fraud comes from overseas.
Scammers have a variety of tricks to catch you out. They may:
- claim that you can access your pension pot before age 55
- approach you out of the blue over the phone, via text message or in person
- entice you with upfront cash
- offer a free ‘pension review’ or lure you in with so-called ‘one-off’ investment opportunities.
Check the facts before you make an irreversible decision. A lifetime’s savings can be lost in a moment.
In some cases, people want to invest in property because they know and trust it, whereas a pension pot can seem invisible and distant. Fraudsters are sitting in wait. Property investor fraudsters persuade victims to hand over money once they have attended a free presentation on how to make money from property.
The scammers tell the victim that the money is to sign up to a scheme to provide them with access to the company’s methods, opportunities to buy properties that are not yet built at a discount, or the chance to participate in the company’s buy-to-let plan. You might think property investment is a way to get rich quick, so you invest some of your hard-earned savings.
What you don't know is that the land is either agricultural or derelict. In many cases, it is unsuitable for development, or is bound to have planning permission refused.
In reality, victims lose their joining fees and do not get a property. It is a get-rich-quick scheme, but for them, not for you.
Danger may even lurk inside your pension if you have a SIPP (self-invested personal pension). In January 2018 the Financial Services Compensation Scheme (FSCS) compensated at least 150 claims against three SIPP firms.
What to look out for
The claims were in relation to high-risk, unregulated, non-standard investments such as storage pods, oil fields, diamonds and overseas property. Many investors want to help the environment, so the words ‘green’, ‘sustainable’, ‘AgroEnergy’ and ‘biofuel’ are all warning signs. If you don’t know what a Jatropha tree is or how it can make you money, walk away.
Another recent SIPP scam is related to self-storage units. One man transferred £370,000 from his pension and put it into a scheme offering an 8%-12% return. The Pensions Ombudsman, which looked at his case, said the “blameless” man had switched out of the “secure and generous” NHS pension scheme and may have lost all his money as a result. Others were lured with claims that they could double their money in six years.
The Pensions Regulator’s five steps to avoid becoming a victim of a pension scam are:
- Cold-called about your pension? Just hang up!
- Check the credentials of the company and any advisers – who should be registered with the Financial Conduct Authority.
- Ask for a statement showing how your pension will be paid at retirement, and question who will look after your money until then.
- Speak to an adviser who is not associated with the deal you have been offered, for unbiased advice.
- Never be rushed into agreeing to a pension transfer.
For more information about pension scams, visit The Pension Regulators website.
Before you sign anything, call The Pensions Advisory Service on 0300 123 1047
Who else is at risk of fraud?
Younger generations are targeted in a different way, and one of the biggest scams is for members of the digital age.
Online trading offering huge pay-outs with minimal risk are proliferating, and all are done with a simple click. Much of it relates to betting on whether shares or currencies will rise or fall, and the trading platform is unlikely to be covered by UK financial regulations. They are called ‘binary options trading platforms’ and great care should be taken.
Cryptocurrency is another global trend where stories of overnight wealth abound. A younger generation thing, fraudsters are alert to how easy it is to lure people into tempting, and bogus, websites.
The third element is the desire for younger generations to be eco-friendly and socially aware. There are many attractive scams acting as a lure to take money for good causes, only for it to be repatriated offshore. Accounts are closed and websites shut down, with no legal recourse.