Pension Scams and Risky Pension Investments

Background

At present, the Authority is only aware of a very small number of suspect cases in the Island, however pension scams are on the rise in the UK.

Subsequently, as part of the Authority’s wider programme of consumer awareness initiatives, the Authority has produced the following consumer awareness information about pension scams and risky pension investments in order to provide consumers with some key information which may help them to protect their pensions.

This information has been published under section 30(1)(c) of the Financial Services Act 2008 and section 42(1)(c) of the Retirement Benefits Schemes Act 2000.

Introduction

Don’t lose your hard earned money. Before making decisions about transferring or investing your pension, consider whether any of the following “red flags” associated with pension scams and risky pension investments indicate that your pension could be at risk.

The following red flags are not exhaustive and the existence of one or more of them does not necessarily mean that the arrangement is a pension scam. However, the red flags do indicate a need for scrutiny and caution.

Cold calls, unsolicited communications and "Free Pensions Reviews"

Pension scams are typically initiated by cold calling or sending unsolicited texts or emails.

In order to appear credible, scammers may claim that they are contacting you from government-backed or other official bodies. However, these organisations would not make unsolicited phone calls or send unsolicited texts to offer a pension review.

The “free pension review” is one of the most common scams. Therefore, be wary of unsolicited communications and online adverts offering a “free pension review”. Professional pension advice is rarely free and should be obtained from appropriately regulated financial advisers.

Guaranteed and/or high returns

Pension scammers sometimes promise guaranteed returns. However, investment returns can never be wholly guaranteed.

Pension scammers may also promise unusually high returns to attract investors - this can be tempting, especially given the low interest rate environment.

However, investors who fall for scams rarely see any of their money back. Therefore, you should be wary of promotions offering guaranteed and/or high returns.

Pressure to make a quick decision

Scammers will often try to pressure you into making a quick decision to transfer your pension.

For example, they may state that the offer is a “one-off” investment opportunity that is only available for a limited period or they may send a courier to your home to deliver or collect documents.

Don’t be rushed into a decision. Take your time and make all the checks you need to satisfy yourself that the arrangement is legitimate and suitable for you before you decide to proceed.

Upfront cash, early access and higher lump sums

Scammers may promise cash up front. Such payments may be described, for example, as a “bonus”, “loan”, “cash incentive”, “advance”, “rebate” or “commission”.

Alternatively, scammers may tell you that you can access your pension savings before the normal minimum pension age or obtain a higher tax free cash sum.

However, accessing pension savings before the normal minimum pension age or receiving more cash than would normally be allowed may be illegal and is very likely to give rise to significant tax charges.

Typically, scammers will claim to be taking advantage of a “loophole” that simply does not exist.

Unregulated financial advice

Pension scammers may recommend a particular financial adviser, pose as a financial adviser or claim to work with a financial adviser. We strongly recommend that you only take financial advice from financial advisers that you have independently checked are licensed or authorised to give financial advice.

If your financial adviser is based in the Isle of Man, you can check whether they are licensed by the Isle of Man Financial Services Authority by clicking here.

If your financial adviser is based in the United Kingdom, you can check whether they are registered by the UK Financial Conduct Authority at www.fca.org.uk/firms/financial-services-register.

Unregulated investments and insufficient diversification

Well-known scams include unregulated investment in a hotel, vineyard or other overseas investment opportunities.

The investments may be worthless or sometimes they do not even exist, and many people have lost their entire pension pot through such scams.

Even if the arrangement is not a scam, unusual investments such as overseas property, forestry, care homes or biofuels tend to be unregulated and high risk.

Also, the risk to your pension is greater if you do not have a diversified portfolio of investments within your pension. In particular, where your pension is invested in one place or venture and the investment performs badly, you could lose all of your money.

If you are considering transferring your pension or investing some of your pension in unregulated investments, we recommend that you obtain advice from a regulated financial adviser that is unconnected to the firm that contacted you. If you speak to the adviser who suggested the transfer or investment, or an adviser who is indicated or referred to you by either the person who initially contacted you or the firm that you are considering investing with, you are unlikely to receive impartial advice.

You should also limit your risk by investing your pension in a diversified range of investments. Don’t put all your eggs in one basket!

Some other things to consider...

Don’t place too much reliance on professional looking websites, brochures or other documents, as it is easy for anybody to create credible looking websites or documents these days. People have fallen for scams by relying on recommendations from friends. Always carry out your own thorough checks and question everything before making a decision or signing anything.

If you have any doubts, we recommend that you speak to an unconnected, regulated financial adviser. If you have already signed something and you are now concerned that your pension could be at risk, contact the provider of your existing pension arrangement immediately - they may be able to stop a transfer that has not yet taken place. You can report suspected pension scams to the Isle of Man Financial Services Authority at [email protected].

Remember - if it looks too good to be true, it probably is!