New rules around pensions come into effect on 6th April. From that date retirees will no longer be obliged to buy an annuity with their pension savings.
Instead they will have a lot more choice about how to take their cash and what they can do with it.
But while greater pension freedom is generally a good thing, there’s growing concern it could mean open season for fraudsters keen to con you out of your pension pot.
Here’s how to stay safe.
Hang up on cold callers
Beware of anyone contacting you out of the blue on the phone, or by text or email, offering a “free pension review”.
The caller’s aim will be to persuade you to cash in your pension pot and hand over the money to them to ‘invest’.
Sales tactics include putting pressure on you to invest in a time-limited offer or promising impressive returns.
The Financial Conduct Authority (FCA), the financial regulator, has just launched the next wave of its ScamSmart campaign and its top tip is to reject cold calls.
However, there are ways that callers can pretend they aren’t cold calling you. They may refer to a brochure or an email that they have sent you or they may have other details about you such as your date or birth or the name of your bank.
If you have been contacted and you are tempted by an offer, it's a good idea to check out the FCA Warning List. This list helps you to identify potential scams by highlighting companies that are best avoided if you are thinking about investing.
Be aware of the warning signs
The FCA says that investment fraud is often sophisticated and very difficult to spot.
Fraudsters can be articulate and appear financially knowledgeable. They have credible-looking websites, testimonials and materials that can be hard to distinguish from the real thing.
However there are certain warning signs you should watch out for. These include terms such as pension loan, savings advance, cashback from your pension or early pension release.
Also look out for references to loopholes, overseas investments, and creative or new investment techniques.
Scammers typically produce convincing marketing materials that promise you returns of over 8% on your investment. Some will put forward a proposal to put your money in a single investment.
This is rarely a good idea in any circumstances – a genuine financial adviser will usually suggest investing your money in a variety of areas.
Other dubious tactics include trying to persuade savers of a loophole that will allow them to access more than the usual 25% of tax-free cash.
Remember the golden rule: if an investment opportunity seems too good to be true, it probably is.
It’s not just people retiring soon that could be the target of pension scammers. Some companies are marketing ‘pension liberation’ schemes that allow members of pension schemes access to their pension pot before the age of 55.
While this might sound tempting, especially if you’re short of money, what the adverts don’t tell you are the fees charged for this service and how much tax you’ll have to pay on the money. Fees and tax can add up to 85% of the sum released.
Worst still, accessing just part of your pension early could leave you with very little, or in some cases nothing at all, to live on in retirement.
Beware of sponsored search listings
If you do an internet search for “pension cash”, “pension advice” or similar, some of the sponsored adverts and others on the first page of Google may not be trustworthy.
Remember that an appearance at the top of web search results does not guarantee a company is legitimate – firms can pay to be there.
Likewise, some less-than-scrupulous outfits may have very convincing websites. Some may imply that they are part of the government-backed Pension Wise service by including ‘wise’, ‘guidance’ or ‘pension’ in their name.
Where to go for advice
The pensions landscape is changing significantly, and the Government has set up a new service called Pension Wise to help members approaching retirement or age 55.
It will never contact you out of the blue to offer you a pension review and it has only one website at pensionwise.gov.uk.
Alternatively you can find an independent financial adviser in your area by visiting unbiased.co.uk.