Pension Freedom has delivered a massive change to the “at retirement” pension market by dispensing with all of the previously expected norms; previously the majority of retirees would buy an annuity, either from their existing provider or as an Open Market Option. The choice of releasing cash, changing to drawdown or taking an annuity has widened the scope for unscrupulous fraudsters.
The Citizens Advice Bureau, (CAB), has published a report highlighting the vulnerability of their client group to pension scams, as they have access to many thousands of pounds to spend in a market they are wholly unfamiliar with. The full report is downloadable from here.
The CAB say that 23% of CAB staff have seen clients in their local office concerned about pension scams in the last 12 months. This puts pension scams at the same level of activity as PPI and computer virus scams, (29%). Figures from Action Fraud show that in the first six months of Pension Freedom, the average pensioner affected by pension fraud lost £163,000, which suggest that the pickings for scammers are very rich indeed!
The CAB suggest that consumers are being bombarded with unsolicited offers for free reviews, show an alarming lack of knowledge and have a very high opinion of their ability to spot a scam. It is this combination of factors that makes the 55-64 year olds so vulnerable to exploitation.
The CAB’s research suggested that 76%, (3 in 4), consumers felt confident at spotting a pension or investment scam. When the CAB put this to the test with a concocted advertisement, 88%, (about 9 in 10), selected an offer which contained specific pension scam warning signs.
Even when the consumer believes they need to make further checks to see if a company is genuine or not, their checks tend to be with informal sources rather than a reliable one; only 1 in 3 consumers would check the FCA Register which would show definitively if someone was authorised to give advice or not.
The CAB offer four top tips for identifying a pension scam:
- Ignore all out of the blue contact about your pension
- If you are receiving advice or a review about your pension(s), check the Financial Conduct Authority (FCA) online register. Anyone giving financial advice should be registered.
- If you are making an investment, check the FCA ScamSmart warning list for known investment scams.
- If you are transferring a pension, ask your current scheme to check the HMRC registration of the new scheme to check it is legitimate.
Although these are a good start, as IFAs, we would suggest that you go further than that.
- If you are between 45-65 and have not yet retired, make contact with a registered IFA and ask for an initial meeting. You will need one you trust at some point, so you initiate the conversation with a person you have selected.
- A good starting point would be www.unbiased.co.uk or a personal recommendation from a friend, but check with the FCA register. Unless they are on the register, they are not someone you want to meet!
- Once you have had the initial meeting, ask yourself if you understood what they said? Be honest; if it all sounded like gobbledygook, try another adviser!
- Did you get a clear cost in actual money, (£.p)? If they only gave you a %, calculate the cost in £.p, based on the amount you believe you have in pensions or investment. Small % can make really big bills; don’t be misled by marketing spin.
- Is what they offered clear, fair and simple? If they are suggesting foreign investment or complex transactions, try another adviser!
- Consider critically what you are being offered; guaranteed returns of more than 4% or general investment returns of more than 8% should be grounds for concern. In either case there will be strings attached and you need to know what they are.
- Be cautious if the adviser seems to be in an undue hurry to complete a transaction. Good financial advice takes time; a month or more to get details from your existing provider is typical, so couriers to get or deliver documents for signing or undue pressure to sign is a major warning sign.
- If in doubt, don’t! If the adviser cannot give you supporting data, external fund links and understandable explanations, just don’t!
For reference our FCA number is 769483 and you can find details of our fees on our website, www.martin-redmanpartners.co.uk, here.
If you would like to know more about how we can help you plan and realise your financial goals then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.