Pension scammers promise to convert pension funds into cash before retirement, or in some cases may suggest individuals can take more than 25% of their pension pot as cash. You could be offered a free pension review, then told you can take cash from your pension even though you’re under 55. This may be called a ‘loan’, ‘saving advance’ or ‘cashback’.
Your pension funds will be transferred from your legitimate pension scheme into one set up by the scam. This new scheme is often based abroad. You may be ‘loaned’ an amount (often around half of your pension) with the company involved taking a fee, often as much as 30%. This fee is often unclear and doesn’t include the tax, potentially as high as 55%, you will owe for accessing your pension early. Any money remaining in the scheme after fees and tax are paid will then be invested in high-risk products or projects like overseas property developments – or it’s sometimes simply stolen outright.
In addition, you could face a tax bill of up to 55%, plus other charges on any funds you withdraw – in addition to the risk that you could also lose all your money. You will have to pay tax even if:
- you didn’t realise you had broken the tax rules
- you offer to put the money back in your pension
- you have paid fees or charges to the company involved
- you have spent all the money
Fraudsters also exploit the pension liberation process by not disclosing tax implications or receiving cash from a pension, failing to advise of the full extent of fees to be paid in relation to any onward investment, and falsely representing anticipated levels of returns when investments are either non-existent or incapable of providing such a return.
What to look out for
Pension scammers will often approach you out of the blue by phone or text message, or in person by ‘door to door’ selling. They can also make contact by email, post, word of mouth or at a seminar or exhibition. They’ll offer a free pension review, or try to lure you in with so-called ‘one-off’ investment opportunities or upfront cash.
- If you are cold called about your pension – just hang up!
- Check the credentials of the company and advisers; they should be registered with the Financial Conduct Authority
- Speak to an adviser that is not associated with the deal you’ve been offered, for unbiased advice
- Never be rushed into agreeing to a pension transfer