IF something looks too good to be true, generally speaking, it won’t be true.
Financial crime relies upon our innate desire to find bargains and amazing deals. Double your money by investing in “low-risk” overseas fancy hotels, renewable energy bonds or “super-safe” forestry. And that will be the last you ever see of your hard-earned dosh.
Fraudsters now use the internet and social media like pirates used the oceans to find ships to ransack and plunder. With Covid-19 and lockdown, most of us are now spending much more time at home and online. Most of us won’t have disposable income or savings to invest speculatively, but many of us will have a pension. And fraudsters want to steal your cash whether it’s in a pension or otherwise.
Pension fraud has been on the rise ever since George Osborne introduced “pension freedoms” as chancellor in 2015. Pension freedoms enables people aged 55 and over to access their defined contribution pension funds in whatever way they want. More than £30 billion has been drawn down through pension freedoms in the UK.
HM Treasury (HMT) espoused the virtue of pension freedoms as giving people flexibility with their own savings for retirement. In truth, HMT has had a bonanza in increased tax take. You can only take 25% of your pension tax-free – anything above is taxed at your marginal rate (20%, 41% or 46% in Scotland). In the first year of pension freedoms (2015/16) HMT received £1.5bn in extra tax.
The House of Commons’s work and pensions committee (WPC) is currently investigating pension scams and fraud five years on from the introduction of pension freedoms. The true cost of pension fraud isn’t known and is largely unreported. The Financial Conduct Authority (FCA) told the WPC this month it had dealt with a single pension fraud case worth £90 million last year.
Action Fraud – the police body for cybercrime in England, Wales and Northern Ireland – told the WPC it had dealt with £30m in pension scams in the past three years. The average loss was £82,000 per person. It accepted there was huge underreporting and that it was conceivable hundreds of millions of pounds had been lost through pension scams in the past few years.
In the old days, criminals would have had to set up fake office fronts with glossy brochures for pension scams. Now all they need is an online advertisement and fake website. This new modus operandi has made it easier for pension scams to merge into the wider problem of investment fraud.
Sadly, people can be lured to part with their cash quite easily as most of us still believe an investment return of 8% is realistic. Such rates in our current economic climate are more likely to be a fraud.
It’s remarkable how our data can be linked to scammers almost instantly. As I was checking some facts for this column, I typed in some investment terms into a search engine. Within minutes I had received a scam email on how to make £40,000 per month from investing in Bitcoin currency. Going on to Facebook or Twitter, you’re then targeted with scam ads, through the ability of search data to be shared with advertisers.
What are the warning signs of a pension scam? Cold calling about pensions has been illegal in the UK since January 2019 and is a sure sign of a scam. Unsurprisingly, scammers have moved away from using telephone calls. Many have developed sophisticated online models, making contact through social media, or will try to use friends and family to reach clusters of people.
Others rely on established practices of offering “free pensions reviews”. If you’re offered one, never give your personal details. The Pension Regulator (TPR) says alarm bells should be ringing if you hear phrases in relation to your pension such as pension liberation, loan, loophole, savings advance, one-off investment or cashback.
Other tell-tale signs of scams include guarantees of better returns on your pension savings; help to release cash from a pension before the age of 55, with no mention of the tax bill that will arise; time-limited offers; high-risk investments generally overseas, unregulated, with no consumer protection; and long-term pension investments – which mean people who transfer in don’t realise something is wrong for years.
We have a bizarre irony where social media companies get paid by fraudsters to advertise online, while also being paid by financial regulators like the FCA and TPR for public awareness campaigns. How long can online and social media giants remain unregulated and unaccountable for the dissemination of adverts that seek to defraud consumers?
If you’re worried about a financial scam you can report it to Police Scotland by calling 101, contact the FCA’s helpline on 0800 111 6768 or use its reporting form: https://www.fca.org.uk/consumers/report-scam-unauthorised-firm
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