Financial scams have become much more sophisticated. No longer are crooked organisations simply emailing a feeble attempt in pidgin English to obtain your debit card detail; they are well-organised and well-educated and could easily appear legitimate if you don’t keep your wits about you. You could even call them professional; some have glossy marketing literature and legitimate offices where they can meet you.

The relentless nature in which they target unsuspecting pension holders especially has been recognised by the Financial Conduct Authority (FCA), who is running a nationwide advertising campaign warning against the con artists.

The problem is that where there are large sums of money and potential confusion around pension rules, the promise of large ‘guaranteed’ investment gains can prove too tempting.

Pensions targeted

You may have read about Final Salary and Defined Benefit pension transfers in the press; the large transfer values and scale of mass exodus has been a hot topic since Pension Freedoms was introduced in 2015. Pension Freedoms means that anyone aged over 55 can withdraw their whole pension to spend as they see fit. It also allowed Final Salary schemes to be transferred to flexible arrangements, often Self-Invested Personal Pensions (SIPPS).

From April 2017 until March 2018 an estimated 100,000 Defined Benefit pensions were transferred. Of the figures The Pension Regulator were able to record, the average value for each was almost £200,000. It’s no coincidence that during 2017 Action Fraud reported that 253 victims had lost an eye-watering £91,000 each to pension scammers.

Spotting the unscrupulous

The golden rule to protect yourself is to always ignore cold callers. No reputable financial adviser or planner will attempt to offer advice unsolicited. Email, text and social media are also common contacts, alongside the more traditional methods such as seminars, exhibitions and by post.

Their proposition will usually focus around exotic-sounding investments with high returns. Bitcoin, foreign property, all sorts, which may sound attractive. You may be told there are guarantees or security in place, but in reality, all investments will be incredibly high risk and if not a certainty, will be highly likely to fail. In all circumstances, if you ever need to check the legitimacy of a business or an individual, check the FCA Register.

The FCA suggests that scammers will often try to:

• Apply pressure to invest quickly; they might offer you a bonus or discount if you invest before a set date or say the opportunity is only available for a short period
• Downplay the risks to your money; they might say you will own actual assets you can sell to make back any losses or use legal jargon to suggest the investment is very safe
• Promise tempting returns that sound too good to be true, such as better interest rates than elsewhere
• Say that they’re only making the offer available to you or even ask you to not tell anyone else about the opportunity

Alarm bells should also ring immediately if you are told they can unlock your pension before age 55. They may suggest using pension ‘liberation’ or a ‘loan back’. This is simply not possible without extraordinary circumstances like a terminal illness. In the unlikely event that you actually receive any money, you will be in for a very large 55% tax bill from HMRC.

Criminal prosecution

Offenders are being caught, but sadly only after a significant amount of people have had their savings plundered. Only this month five people were sentenced to a total of 17.5 years in prison for a huge share fraud. The second largest criminal prosecution brought by the FCA, the scam cost more than £2.8 million of victims’ money.

Callously targeting the elderly and vulnerable with cold calling, victims were talked into investing in shares of a Madeira-based company and promised ‘guaranteed’ returns between 125% and 228%. Any boast of a guaranteed return above the norm should be a red flag. The only guarantees available are government bonds. An investment purporting a guaranteed investment return so high is, without doubt, a scam. As written on the Financial Conduct Authority’s dedicated ScamSmart fraud prevention site; “if it sounds too good to be true, it probably is.”

Is there compensation?

It really depends on the circumstances. We do have the  Financial Services Compensation Scheme (FSCS), who help cover losses relating to pensions, investments, deposits and insurance policies. During 2017/18 they paid out over £400m to almost 70,000 customers of failed firms, £112 million of which were related to SIPP related losses alone. There are limits on the amount of compensation you can claim. That depends on the investment type and the basis of a claim, but typically the maximum is £50,000 per person, per failed investment.

A very large word of warning: The failed provider has to be authorised by the FCA. Pension scams will almost certainly not be authorised or regulated in any way and the FSCS will be unable to help.

Prevention is better than cure

The sheer volume of scams and people falling foul of them are increasing annually. The FCA is being proactive in offering real-world advice, but it remains a serious issue. If you are ever in need of financial advice, we at Bluesky are Chartered, independent, highly-qualified specialists. You don’t have to take our word for it either, you can read real-life client experiences here.