Protect Yourself from Pension Scams

FUTURE PROOF: Thanks to penion freedoms ou can now get your hands on your savings at retirement - but so can fraudsters. We reveal how they target pensioners

Emma Wall 29 September, 2015 | 4:02PM
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Emma Wall: Hello and welcome to the Morningstar Series' Ask the Expert'. I'm Emma Wall and I'm joined today by Parminder Dhothar from Phoenix Group.

Hi Parminder.

Parminder Dhothar: Hi there.

Wall: So we are here today to talk about pension scams. The pensions freedoms that we've all being granted from the last budget are fantastic, but they do come with risks, don't they? You are in possession of information, which shows that actually fraudsters are out there trying to trick people into getting held of their cash.

Dhothar: Yes, definitely. I mean we've seen pension liberation or pension scams as we kind of now perceive it, really escalate from about 2013 onwards I think with the new pensions freedoms that came into force in April, that's given another angle for these fraudsters to kind of target.

Wall: And what are we talking about here, because we do get some letters through about people who have made ill-advised or ill-informed investment decisions such as I've put my entire pension pot into a vineyard in Spain, they've promised me 8%, and actually there’s been capital loss. Is it that or is it more complex fraud?

Dhothar: We're seeing a variety of frauds. We are seeing that kind of activity where it's almost an investment scam, a promise of guaranteed returns of bonus payments and they could be in all sorts of different investments; vines, overseas property, storage pots, car park spaces. But we're also seeing outright theft where transfers are being made and the money and the company behind the transfer seemingly – are actually disappearing.

Wall: And I suppose that's the difficult thing, isn't it? Because as an investor the former is legal, but the latter is illegal, and it's sort of sorting out what is an ill-informed decision, but a legal investment and what's actually fraud?

Dhothar: Some of these investments might seemingly be legal. But actually when you look underneath them, they are not. They are just very well marketed to customers. And then as you said, it's very hard sometimes to distinguish the difference. Some of the indicators might be that you've been – have received an unsolicited call or a leaflet for you to post or somebody knocking on your door, and that isn't how a legitimate company selling an investment would approach you. So…

Wall: And what sort of sums are we talking about here, is it hundreds, is it thousands, is it….?

Dhothar: So as an organisation, the Phoenix Group since we've undertaken this activity, we are looking at about £26 million that we've prevented. I think across the industry in the past five years, it's estimated to be £1 billion, now that's just pension scams. If you look at investment scams which is slightly different, I think, the detective number for investment scams in 2014 was about £1.73 billion, so it's a big industry.

Wall: And what sort of sums are people being liberated of?

Dhothar: So the average amounts we are seeing in terms of victim profiles, a small pots of money between about £15,000 to £20,000. We have seen cases where the pots were a lot larger. I think seemingly with the new pension freedoms, those being attracted to cashing in, of those smaller pots of money and are not necessarily going to get advice – regulated advice which might help them in the decision making.

Wall: And of course this is all of their pot. It may seem – £15,000 might be small compared to other pension pots, but if that's all your pension savings, it's devastating.

Dhothar: It definitely is and I mean there is a number of stories that have come out in the media and we've come across with our customers where they are really worried about their future and they are desperate at time which is kind of what drives us to kind of push to help prevent these frauds from occurring in the first place.

Wall: So what can people do, I mean, those that have fallen victim obviously need professional help. But those who want to be aware of the dangers out there?

Dhothar: As mentioned earlier, unsolicited contacts whether that's text message, phone calls or somebody on your door offering a free pension review or a loophole, they are things to be really concerned about. That isn't how a professional company would target or approach it. In terms of in a normal business activities pressuring you into making a decision, oversees or – investments that seem a bit fancy, if that's the right word, a guaranteed returns.

Wall: That word guarantee is key, isn't it? Because the only guaranteed investment product out there actually is an annuity?

Dhothar: It is, yeah. Or if you put your money into a – an ISA, for example, then you'd be guaranteed interest on that but these kind of investments there is no – I don't think that I have come across where you can guarantee their income back.

And I think these all intricacies we've seen where couriers, for example, have been sent around to collect paperwork, which is kind of not would occur within these kind of transactions. They are the things to be really aware of.

Wall: Yeah, a legitimate bank would ask you to present them in person so they can authorize them.

Dhothar: Exactly. And asking for identification paperwork upfront which wouldn't – they wouldn't necessarily need for that transaction. And the worry for us in those cases is that that information could be used to commit other types of fraud such as ID theft.

Wall: And what should people do if one of these flags has been raised. They have approached by someone, they don't seem right... What's the next course of action?

Dhothar: I think getting in touch with your pension provider, to warn them so they can put a flag on your policy to prevent anybody pretending to be you to access it, or contacting Action Fraud and reporting your suspicions. And also you could contact TPAS, The Pensions Advisory Service who might be able to give you support.

And Pension Wise, of course, that's a new service that was set-up by the government after the freedoms come into place to kind of give you guidance as to what your options are. So that's obviously a great place to go to as well.

Wall: Parminder, thank you very much.        

Dhothar: Thank you very much.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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