By Lee Halpin

It is not often a pension issue matter features on the televised evening news, but when it does it is usually for the wrong reasons.

Grave concerns were raised this month following the criminal conviction of two fraudsters for their part in a pension scam in which

245 individuals were persuaded to transfer from legitimate occupational schemes and ruinously give the fraudsters control of their pension savings.

Much of these pension savings are now unlikely to be recovered, having been misappropriated. The sums involved here were not insignificant, amounting to £13.7 million in total. The devastating impact on the victims was best described by the judge when handing down his judgment as: “People who worked hard, saved for their future, and have been robbed of their financial security”.

Unfortunately, this is not an isolated instance. The cost of fraud generally to the UK is in the billions rather than millions – during 2020, Action Fraud reported £3 billion in losses across both individuals and organisations.

The relatively high value of pension savings and the fact that many people do not typically engage with their savings until later in life

makes them a particularly attractive target for fraudsters.

Fraud by its definition involves deception. But, as pensions can appear complex to the layperson, fraudsters often see this as a perfect disguise for their dishonest schemes. So, when it comes to your pension savings, it is worth bearing in mind some very important fundamental points that can often help in spotting the characteristics

of a scam.

Firstly, in keeping with the traditional role of a pension as a way of saving money for retirement, there is a minimum age that pension savings can be accessed. This is known as Normal Minimum Pension Age (NMPA) and is currently age 55 (rising to age 57 in April 2028). The only exception that would validly allow early access to pension savings before NMPA is on ill-health grounds, which must be supported by evidence from a registered medical practitioner.

Liberation scams are falsely promoted on the notion that there are valid grounds to access

a pension before NMPA. Such offers should immediately be viewed as a red flag, as there are no loopholes to allow early access to pension savings.

Another typical scam characteristic involves promising high investment returns. It is not hard to see how such an offer can appear attractive to savers because more than a decade of ultra-low interest rates makes holding cash an unappealing prospect, whilst the volatility caused by extreme events, such as a financial crash or global pandemic, can deter some people from significant exposure to equities.

But the risk and return relationship should always be viewed on the basis that the greater the risk, the higher is the potential for profit or loss. So, it follows that seeking higher returns goes hand in hand with a greater risk of losing some

or all of your initial capital.

Offers of high returns with no or limited risk, or of returns that are guaranteed, should always be viewed with scepticism. Extreme caution should also be exercised to ensure the actual nature of the proposed investment is fully understood, and professional, regulated advice should be sought where necessary.

Another technique used by fraudsters to get access to pension savings is to adopt a two-stage method. Firstly, they persuade the pension saver to instigate a valid (post NMPA) withdrawal of their pension savings and then suggest alternative products for where these savings should be invested. Whilst in a pension scheme, investments benefit from two significant tax exemptions – generally income generated is free from income tax and realised gains are free from capital

gains tax. Given that a pension is a long-term savings vehicle the impact of these exemptions compounded over a long period of time can

be significant.

So, the loss of these exemptions, by removing funds from the pensions tax wrapper, can mean losing out on significant returns.

The withdrawal of pension funds to another non-pension product should always be considered carefully in relation to the tax implications as well as ensuring there are sound motives for doing so.

You might well question how the fraudsters get away with it? Here in the UK, financial services are highly regulated. Dealing with an authorised company offers a number of protections – an obligation to treat customers fairly, a free ombudsman service if you disagree with the outcome of a complaint and the safety net of

a compensation scheme if a firm fails and you have lost out.

But often the fraudsters just carry out what appears to be a regulated activity without the necessary authorisations and the regulator can only act once it is brought to their attention, and this is usually after the event. Dealings with such an unauthorised firm will likely not benefit from any of the above protections.

Whether or not a firm is authorised, can be checked on the FCA’s online register. But

care should be taken, as some fraudsters intentionally attempt to imitate legitimate authorised firms.

Helpfully, more information on how to avoid investment and pension scams is available on the FCA website (see ScamSmart).

In the context of keeping your savings safe, the old adage of “if it sounds too good to be true, it probably is” is as good advice as any.

Lee Halpin is head of technical services @sipp.