During the first year of pension freedoms, the sum lost to fraudsters was double the figure of the previous year. We offer 10 insights on current deceptions.
Pension freedoms introduced in 2015 allow those age 55 and over to spend or invest their pension funds as they want. However, according to the government, in the first year of relaxed rules around £19 million was lost to pension fraudsters – double the figure for the previous year.
Scammers typically encourage people to withdraw their pension savings under the new rules and invest in high-risk investments that are likely to fail or may not even exist. Often victims are urged to transfer their pension pot into another scheme that will invest their pension savings, but the outcome is the same: the investor loses their money.
Government figures suggest that one in 10 pension transfer requests is instigated by fraudsters. The scams are numerous and come in various forms. Here are some common guises.
1 Burial plots
Scammers are taking advantage of the UK’s booming population and limited supply of land to induce people to buy burial plots. Martin Tilley, director of technical services at pension provider Dentons, says ‘marks’ are provided with information that is correct, in order to build trust.
‘These people operate by giving people a hook: a “fact” that is correct,’ he says. ‘For example, they point out that Muslims, in accordance with their faith, are buried and not cremated. The scammer then offers burial plot investments in areas where there is a high concentration of Muslims. The idea is that there is limited supply and high demand [correct], so land will go up in price [incorrect].’ Tilley adds that the ‘scammers control the market’ and plots are ‘vastly overpriced’.
2 Off-plan property
Off-plan hotel room scams are common. Investors are offered the chance to buy rooms in hotels being constructed in areas such as Cape Verde, and promised high returns. However, the rooms are being sold to UK investors at inflated prices.
‘You are buying a hotel room for £50,000 in Cape Verde and being offered a 10 per cent return, but you can buy them directly for less than £15,000,’ says Tilley. ‘The first £10,000 you pay is funding your 10% annual return for the first two years because the hotel hasn’t been built yet. Then you pay 15% commission to whoever is flogging the rooms and another 15% to the intermediary.’ The development may take years to build, and even if it is successful, there is no guarantee that you will be able to sell when you want to access your pension investment.
Bitcoin is big business and news of its soaring value has made investors susceptible to fraud.
Michelle Cracknell, chief executive at The Pensions Advisory Service (TPAS), relates how one pensioner moved their money into a new pension, believing the scheme was buying the cryptocurrency, when it was actually buying shares in a bitcoin company that subsequently went into voluntary receivership.
As a shareholder, the pensioner was at the back of the creditors’ queue and, adding insult to injury, was then billed by the administrator of the company for administration fees.
Cracknell says: ‘When we checked the firm out, the trustees of the pension, the administrator and the director of the bitcoin company all had the same surname. It was a family set-up.’
4 Self-administered schemes
Most investors will have heard of self-invested personal pension schemes (Sipps), but possibly not small self-administered schemes (Ssas). The latter are typically used by small businesses to hold assets in a pension, but fraudsters use them to get around stricter Sipp rules on permitted investments.
An investor will be urged to move their money into a Ssas, which is not as rigorously regulated as a Sipp. Anyone can legally set up a Ssas and demand a transfer of pension funds into it, so a pension provider will move money across without question. The fraud occurs when the pension funds transferred are then placed in high-risk investments.
To protect investors, Dentons precludes investment in high-risk areas such as hotel rooms, storage pods or land banking in its Ssas. However, not all providers are as scrupulous.
5 Offshore bonds
Investors must ensure the wrapper they are investing in is legitimate. Tilley says crooks like to dress unregulated investments up in investment wrappers that are regulated to reassure victims.
He says: ‘Some unregulated investments are packaged as offshore bonds, which are regulated. But what they put inside bonds is rubbish such as car-parking spaces.’ The bond might promise 8% a year, but the scammers will ‘run it for two years, pull all the money out and disappear’.