What you can learn from three high-profile pension scams

Pen­sion fraud has been on the rise ever since the gov­ern­ment intro­duced pen­sion free­doms in 2015. The relax­ation of leg­is­la­tion allows over-55s to access cer­tain types of pen­sion pots and, if they wish, take out all their sav­ings in one lump sum. The sig­nif­i­cant assets peo­ple hold in their pots and the increased flex­i­bil­i­ty make them an obvi­ous tar­get for immoral or ille­gal activ­i­ty. 

Gov­ern­ment, reg­u­la­tors and pen­sion providers are all involved in pro­tect­ing pen­sion investors. But it remains the case that it’s ulti­mate­ly the indi­vid­ual who is expect­ed to guard them­selves against fraud. 

Over the years, there have been high-pro­file scams that high­light the impor­tance of only deal­ing with legit­i­mate organ­i­sa­tions and seek­ing reg­u­lat­ed advice.

1. Withdrawing lump sums for truffle trees

Pro­fes­sor David Blake, direc­tor of the Pen­sions Insti­tute at Cass Busi­ness School, at City, Uni­ver­si­ty of Lon­don, believes the change in pen­sion and tax rules in 2015 will turn out to be “one of the great­est cat­a­stro­phes in British pen­sion his­to­ry”. Free­doms work by allow­ing peo­ple to con­vert their pen­sion into an income draw­down account. Their mon­ey is invest­ed in the stock mar­ket while they dip in and out of their sav­ings.

Age UK has raised con­cerns about pen­sion­ers mak­ing reg­u­lar high-val­ue draw­downs. No invest­ment is with­out risk and if mar­kets turn and invest­ments make loss­es over a pro­longed peri­od, there’s a seri­ous pos­si­bil­i­ty mon­ey will be exhaust­ed.

Richard Butch­er, chair of the Pen­sions and Life­time Sav­ings Asso­ci­a­tion (PLSA), says it’s com­mon for some­one to under­es­ti­mate how long they’ll live and how best to man­age their draw­downs. “It’s quite fright­en­ing how few peo­ple can con­cep­tu­alise quite how much mon­ey they need,” he says. 

Many, like Blake, believe this is a tick­ing time bomb. “What is going to hap­pen when all these peo­ple have spent their pen­sion pot and still have many years left to live?” he asks.

Mean­while, scam­mers are offer­ing peo­ple impos­si­bly good invest­ments for a chance to increase the val­ue of their sav­ings. They trick peo­ple to tap into their pen­sion before they turn 55.

In one high-pro­file pen­sion lib­er­a­tion scam, more than 100 UK investors learnt mon­ey tru­ly doesn’t grow on trees. They were mis-sold saplings inoc­u­lat­ed with truf­fle spores which turned out not to exist. Fraud­sters encour­aged trans­fers into a type of pen­sion called a small self-admin­is­tered scheme, or SSAS, which allows indi­vid­u­als to man­age their own retire­ment funds, a set-up typ­i­cal­ly designed for expe­ri­enced investors.

The truf­fle tree oppor­tu­ni­ty cost vic­tims tens of thou­sands each, includ­ing a cou­ple in their 40s. Against advice from their provider that this could be lib­er­a­tion fraud, they trans­ferred £78,000 to a con­man and lost track of their life sav­ings. HM Rev­enue & Cus­toms came after them with a sur­prise bill, as tak­ing pen­sion cash before the eli­gi­ble age is sub­ject to 55 per cent tax.

2. Dolphin Trust’s damage

Pen­sion scam­mers pan­der to the human instinct of want­i­ng a good deal. The Dol­phin Trust, now known as Ger­man Prop­er­ty Group, offered investors the chance to entrust their pen­sion sav­ings in a scheme that would rede­vel­op list­ed build­ings in Ger­many and turn them into lux­u­ry flats. Investors were mis­led, many prop­er­ties were left derelict and in July 2020 the firm filed for bank­rupt­cy. It owes an esti­mat­ed £378 mil­lion to peo­ple in the UK.

Finan­cial plan­ner Andrew Haley is help­ing some­one left dev­as­tat­ed by Dol­phin. A reg­u­lat­ed advi­so­ry firm encour­aged his client to take £100,000 from their pen­sion and invest it over­seas. Instead of chas­ing high returns, Haley says his “client was sim­ply trust­ing of the wrong peo­ple who took advan­tage of their lack of knowl­edge and expe­ri­ence”. They are now unable to retire until state-pen­sion age at the ear­li­est.

The Finan­cial Con­duct Author­i­ty (FCA) is inves­ti­gat­ing finan­cial advis­ers who sug­gest­ed UK cus­tomers invest in the Dol­phin Trust and some self-invest­ed per­son­al pen­sion scheme, or SIPP, oper­a­tors that held people’s mis-sold invest­ments.

The scan­dal rais­es ques­tions about whether reg­u­lat­ed com­pa­nies should accept invest­ments from peo­ple who didn’t receive reg­u­lat­ed advice and how fair is it that the risks aren’t shared? Pen­sion hold­ers should always err on the side of cau­tion when con­sid­er­ing who they trust with their mon­ey.

3. Rise of the clones

This advice is espe­cial­ly impor­tant when it comes to nav­i­gat­ing the Wild West of online duplic­i­ty. The FCA recent­ly issued a warn­ing over “clone firm” invest­ment scams, as Action Fraud report­ed more than £78 mil­lion of clone-relat­ed loss­es in 2020. The tac­tic is increas­ing­ly pop­u­lar in the pen­sions sec­tor, with fraud­sters jump­ing on con­fi­dence in well-known brands.

Last sum­mer, a clone mas­quer­ad­ed as Avi­va. Peter Hazle­wood, group finan­cial crime risk direc­tor at Avi­va, says: “We’re work­ing round the clock with the author­i­ties to have these types of web­sites tak­en down. Unfor­tu­nate­ly, as soon as one is tak­en down, a new one inevitably pops up.”

Vic­tims of this scam tend to be peo­ple approach­ing retire­ment age who have access to their pen­sion pot and are brows­ing the inter­net in the hope of find­ing high­er returns. Warn­ing signs of clones include low-qual­i­ty images on web­sites, poor­ly writ­ten copy or miss­ing con­tact details. But­ler at the PLSA was once near­ly reeled in by a mes­sage pur­port­ing to be from a gov­ern­ment web­site, until he realised the url end­ed in “.guv”.

Mark Stew­ard, exec­u­tive direc­tor of enforce­ment and mar­ket over­sight at the FCA, says: “When it comes to clones, I can­not empha­sise enough how impor­tant it is to dou­ble-check every detail. And remem­ber, if it looks too good to be true, it won’t be true, so don’t invest.”

The FCA’s warn­ing list of iden­ti­fied clone com­pa­nies is updat­ed dai­ly. Unfor­tu­nate­ly, if peo­ple don’t use FCA-autho­rised com­pa­nies, they don’t have access to the Finan­cial Ombuds­man Ser­vice or the Finan­cial Ser­vices Com­pen­sa­tion Scheme and it will be even more dif­fi­cult to get any mon­ey back if things go wrong.

High-pro­file scams raise aware­ness of the var­i­ous preda­to­ry tac­tics out there and the impor­tance of work­ing with trust­ed and reg­u­lat­ed advis­ers. With the stakes so high, pen­sion savers should remain hyper-alert to any red flags.