AJ Bell press comment – 11 November 2022
- Regulators have again warned savers over the risks of scams as the cost-of-living crisis heaps pressure on strained household budgets
- Savers also urged ‘not to panic’ over recent headlines suggesting pensions are in ‘crisis’
- Problems linked to Liability Driven Investments (LDI) had created a cashflow issue for certain defined benefit (DB) schemes and a bond selling problem for the government – but the vast majority of people’s pensions were never directly at risk
- Tips for savers to avoid becoming a fraud victim and the most common fraud tactics
Tom Selby, head of retirement policy at AJ Bell, comments:
“Rising inflation and the spectre of recession are looming over UK households, increasing the financial vulnerability of millions of savers and retirees.
“Brits have also been exposed to weeks of headlines suggesting pensions are in ‘crisis’, which inevitably caused huge unnecessary worry for lots of people.
“All of this uncertainty will inevitably have left people more vulnerable to scams and more at risk of making poor retirement decisions, such as withdrawing their entire pension pot in one go and potentially paying thousands of pounds in unnecessary income tax as a result.
“The reality was the post-mini-budget problems we witnessed, and the subsequent Bank of England intervention, were about preventing a ‘death spiral’ in UK government bond sales, rather than there being any direct or immediate threat to people’s pensions.
“The hedging instruments at the heart of the crisis were held by defined benefit (DB) schemes, meaning that the majority in defined contribution (DC) schemes were not directly affected. Even in the case of DB schemes with LDI exposure, provided the employer was not at risk of going bust, their pensions should still have been secure.
“It is vital as the dust settles on the LDI crisis that all parties involved in communicating the issue reflect on the unnecessary distress caused to people who thought their hard-earned pensions may not be safe.”
Here are some steps you can take to help avoid being scammed:
1. If someone contacts you out of the blue to talk about your pension, hang up!
Most people at some point will have received a phone call from someone they don’t know claiming to offer an incredible investment opportunity for their savings or a ‘pension review’ service. If this happens, hang up immediately. Equally, don’t respond to text messages, emails or social media contact from someone you don’t know claiming to hold the key to retirement nirvana. In all likelihood this will be a scammer phishing for victims, so, whatever you do, don’t take the bait.
2. Don’t deal with unregulated ‘advisers’
While telephone, text, email and social media remain the primary weapons of choice for the modern con artist, some continue to knock on doors; usually targeting older people they think are more likely to be vulnerable. Make sure you only deal with FCA-regulated advisers – this is particularly important as if you are sold an investment by an unregulated individual, you won’t have recourse to compensation.
3. Be wary of overseas or crypto investments promising sky-high returns
Scammers often promise double-digit returns through exotic investments in far-flung locations. Promoting cryptocurrency investment ‘opportunities’ has also become an increasingly popular route for fraudsters. If you’re told you can get 10%+ annual returns from a teak plantation in South American or a hotel room in Spain, tread carefully and do your due diligence. Often fraudsters will advertise investments in an asset that doesn’t exist or hasn’t yet been built, so don’t hand over your cash unless you’re 100% confident you’re being sold a genuine, bona fide investment.
4. Watch out for schemes offering ‘guaranteed’ returns
Nothing is guaranteed when it comes to investments. If a company you’ve never heard of says it can deliver GUARANTEED returns of any amount, don’t touch them with a barge pole.
5. Don’t rush to make a decision
Don’t be forced into doing something you aren’t comfortable with and might regret by a pushy salesman or saleswoman desperate to boost their commission. Your pension might just be the most valuable asset you ever own, so invest it wisely. And if you are at all unsure, check the FCA’s ScamSmart website (ScamSmart - Avoid investment and pension scams | FCA) or speak to a regulated financial adviser before making any decision.
The most commonly used tactics of pension scammers to be aware of include*:
- the offer of a free pension review
- promises of higher returns, where fraudsters say they will guarantee they can get you better returns on your pension savings
- help to release cash from your pension even though you’re under 55. An offer to release funds before age 55 is highly likely to be a scam, and will result in you being hit with an eye-watering tax penalty from HMRC
- high-pressure sales tactics, where the scammers may try to pressure you with ‘time-limited offers’ or even send a courier to your door to wait while you sign documents
- unusual investments – these tend to be unregulated and high risk, and may be difficult to sell if you need access to your money
- complicated structures where it isn’t clear where your money will end up
- arrangements where there are several parties involved (some of which may be based overseas) all taking a fee, which means the total amount deducted from your pension is significant
- long-term pension investments – which mean it could be several years before you realise something is wrong
*Source: FCA
