The frightening truth about pension scams and how you can protect your clients

By Christina Bentley on October 31, 2019

Keep your clients safe

Your financial advice clients trust you to help them manage one of their most precious possessions – their finances. Your clients trust you to steer them away from unwise financial investments and pitfalls, but there may be other unseen dangers you can protect them from.

A Financial Conduct Authority (FCA) press release revealed victims lost an average of £82,000 to pension scammers in 2018.

This figure is likely to be much higher as many incidents go unreported and even unnoticed for years.

With this in mind, it’s important that you educate your clients so they don’t become a statistic.

Who is at risk for pension fraud?

No one is immune to pension fraud. Fraudsters will target anyone, regardless of how big or small their pension pots are.

Research from the FCA and The Pensions Regulator (TPR) uncovered that 42% of pension savers, or over 5 million people in the UK, could fall victim to one or more scams. This proves that even your savviest client isn’t safe.

While 2015’s pension freedoms helped many people have more control over their retirement, they also created the perfect opportunity for scammers to prey on those that don’t understand their options.

Promises of early unlocked pensions are one of the forms these scams can take. Knowing how they work will help you better safeguard your clients.

How do pension scams work?

Pension fraud is successful because scammers used sophisticated methods. They tempt with too-good-to-be-true offers and promises of high returns. They’re also articulate, have above-average financial knowledge and often pose as financial advisers.

Often claiming that they represent FCA-registered firms, these ‘clone firms’ are almost indistinguishable from the originals. Fraudsters may also use the real firm reference number (FRN), contact number or address when cold calling.

What should your clients look out for?

According to Action Fraud, cold calling is the most common method people fall for despite the early 2019 ban. 23% of respondents aged 45-65, stated they would take a cold call from a company wanting to discuss their pension schemes.

Here are other warning signs to make your clients aware of:

  • Claims they can help them unlock pension pots before they turn 55
  • Unsolicited phone calls, emails, letters or texts about their pensions
  • Limited-time offers or other tactics to pressure them into transferring their pension funds and/or sending documents via courier
  • Encouraging investment in unusual, risky ventures such as parking, overseas property, forestry or renewable energy
  • Promises of higher guaranteed returns on savings, cashback or tax loopholes

What to do if you suspect your client is or could be a pension fraud victim?

You can’t protect your clients from every bad financial decision, but you can help them avoid losing their pensions.

Trust your instincts if a client suddenly decides to transfer their pension. The Pensions Regulator’s checklist can help you identify whether your client is walking into a trap. But if they’ve already transferred their pension, they’ll need to contact their pension provider immediately.

Many victims feel too embarrassed to speak up. Support your client and let them know they’re not alone. The FCA strongly encourages people to report their crimes. They’ll then investigate and update their unauthorised firm list, which may prevent other crimes.

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