In 2015 new regulations came into force to make it easier to transfer your pension out of your existing scheme and to use the money to make your own investments. Since then a wide range of investment products have come onto the market, some good, some bad, some fraudulent. Pension risk and fraud are a major concern. The Pensions Regulator was set up by the Government to provide advice and guidance, but it is still your responsibility to avoid scams and high risk pensions options.
Losses from pensions fraud amounting to over £45 million have been reported to the police. These are cases of downright criminal intent, and is only the tip of the iceberg. One can only guess how much more money has been extracted from pensioners by unscrupulous operators who work just on the safe side of the Law. Too many pensioners have lost their hard earned pension pots leaving them short of money when they stop work.
When the last government announced the new pension freedoms it was patently obvious that many unsophisticated investors would be put at risk of losing their hard earned pension savings. No fail-safe mechanisms were put in place to protect people who were thinking about transferring their pensions.
The government sponsored Pensions Regulator provides an excellent source of information and advice online and by telephone, but you have to know about their web site to make use of it. Too many people only find out about it after they have been stung.
You can avoid being caught out by pension scams and high risk investment proposals by following some very simple rules:
Rule 1: Don’t transfer your pension until you have decided what you are going to do with it.
You are going to take one of the most far-reaching decisions of your life and one that will be hugely important when you give up work and start living off your pension. Get it wrong and you could be seriously short of money for the rest of your life. So before you take the plunge, take your time to consider your options and take as much advice as you can get. Don’t get into the position where you have a large sum of money burning a hole in your pocket!
Rule 2: Do not put all your eggs in one basket.
There is no such thing as a no risk investment. There are very low risk investments that carry a very low rate of return (i.e. income), but every investment carries some risk. Even an occupational pension scheme or defined benefit scheme runs the risk of under-investment or insolvency of the scheme sponsor. (Look what happened to British Steel and BHS pensioners).
So look for a selection of investment vehicles in different sectors. Spread your investment across different types of risk, such as geographic, business sector, large or medium size businesses.
Rule 3: Do not be rushed into making an investment
If you are offered some whizz bang investment opportunity, but get in quick before it’s fully invested, walk away. Genuine promoters expect their investors to take time to consider their options. Fraudsters want to get your money quickly before you have a chance to get proper advice or think about what could go wrong.
Rule 4: If someone cold calls about pension investments, just hang up.
No reputable investment house would even consider cold calling you to promote their schemes. There is a suspicion that PPI brokers have been passing on client information to investment scammers. If you get a cold call about pensions or investment, put the phone down. As soon as they have your money they will disappear.
Rule 5: Do your homework
With the internet it is very easy now to find out who is behind any investment proposition.
By Law, every company is required to include its trading name, company registration number and business address on its company website. It is amazing how many do not. However, you can often find the company name in the website Terms and Conditions, or by a google search. If you still can’t find any company details, you can always phone them up. If there are no contact details, don’t trust them with your money!
If there is no company behind the investment proposal it is probably a scam.
Avoid investment schemes run by offshore companies that are difficult to research. The only reason to run a scheme from a foreign base is to avoid financial scrutiny. Regulations in other countries can be very lax. You may have no protection if the scheme goes wrong.
Every UK company has to register with Companies House, a government agency. If it is not registered at Companies House it does not exist. You can find out everything you need to know about a company from the Companies House website. If you are not familiar with the Companies House website, follow our simple step-by-step guide. It’s easier than you would think and it’s free.
If a pensions advisor is recommended, check that he or she is registered with the Government’s Money Advice Service.
Fraudsters are very clever at forging documents and producing glossy brochures and documentation. Check every statement made with an independent source. Even if the investment is recommended by a financially savvy friend or family member, still take the time to do your research.
Step-by-step guide to using the Companies House website.
Companies House holds all public documents about a UK registered company. The website is easy to use, access is free of charge and it is available any time of day or night. To search the register click on the Search the Register page. You can enter a company name or the unique company registration number.
If you do not have the exact company name, the register will display a number of similar names you can choose from. If you’ve put in the exact name or a company number, a new screen will open. Click the result to verify, and the company overview screen will open.
This will show:
The company registration date. If it is very recent you will know that the scheme is probably quite new. Do you want to invest in a scheme with no track record?
Companies are required to file accounts and a “Confirmation Statement” every year. If either of these is overdue, you should take extra care.
There are three more tabs on this screen:
Filing history, people, charges.
If you want to find out the names of directors, click on people.
If you want to check the company’s accounts, open the Filing History tab. Here you will find a list of all the documents filed at Companies House.
A simple guide to understanding the accounts:
Open the most recent accounts filing.
Go to the balance sheet:
If there are brackets round “Capital and reserves” the company owes more money than it has available. Probably not a good investment.
The size of the numbers on the balance sheet reflects the size of the company. If the numbers are small it is probably not a low risk investment.
Disclaimer: While we make every effort to ensure that the opinions and facts expressed in this article are accurate, all content is provided in good faith and for general information purposes only. We will not be liable for any losses arising from any page or post on this website. We do not provide advice, and readers should seek professional assistance from regulated advisors before making any investment decisions.