Pension scams – what you need to know
By Chris Burke
This article is published on: 2nd December 2021
Pension scams have cost UK expats residing in Spain millions of pounds over the last few years. The reality is that anyone can fall foul to a pension scam, irrespective of how financially savvy they think they are. The fraudsters often seem very professional and trustworthy and promise guaranteed lucrative returns, but in reality, the victims are usually left with nothing.
How do pension scams work?
Fraudsters normally contact the individual by phone, text or email. They may claim to be a fictitious company or they may even falsify their identity, for example claiming to be from HMRC (HM Revenue and Customs) or the FCA (Financial Conduct Authority). After establishing a rapport with the individual, the scammer will then try to persuade the victim to part with their pension. There are multiple different strategies for this, but each strategy effectively entails persuading the victim to transfer all or a large part of their pension to the fraudster.
The pension may be stolen outright, or it may be invested into rare, high-risk investments such as overseas bonds, infrastructure or obscure technologies. The scammer may also promise early access to the pension through various ‘loopholes’ or by offering loans to be paid back upon receipt of the pension. In this scenario, alongside potentially losing their entire pension, if they transfer it out early the victim may also face a large tax bill from HMRC. If HMRC class the early pension withdrawal as ‘unauthorised’, the tax bill can mount up to a maximum of 55%!
Only in very specific circumstances are you able to withdraw your pension early. If you are contacted by someone trying to persuade you to do this, it is likely to be a scam.
How to avoid pension scams? Top 5 Tips
1.Research the individual/company – are they genuine?
Research the individual and the company that they work for on the internet. Depending on how they contacted you, perform a search on their phone number, email address or even their LinkedIn profile. Next, look for news articles and/or reviews on the company, ideally from an independent source (companies in the past have falsified reviews or even paid news outlets to publish positive publicity).
2. Contact a government regulated body for guidance
After conducting your own research online, why not contact an official government regulated body for additional verification? Companies such as Pension Wise, the Pensions Advisory Service or the Money Advice Service may be able to assist and ensure that the proposition is legitimate.
3. ‘If it sounds too good to be true, it probably is’
Have you been promised guaranteed returns at an exceptionally high rate? If the proposal sounds too good to be true, it probably is. Furthermore, high rates of returns often also result in high levels of risk.
4. Offers of early pension access – thoroughly research
As mentioned above, this is a very common pension scam. In only very rare case scenarios are you able to access your pension under the age of 55, so if this has been offered to you please conduct thorough due diligence. It may furthermore result in a tax bill of up to 55%.
5. Investing in an unusual asset class – be vigilant of scams
Be mindful of proposals to invest in strange and obscure assets. The assets which you invest in should all have easily accessible information available on them. For example, the funds that you invest in should all have factsheets available online (on Trustnet for example) and the shares you invest in should all be listed on a reputable exchange.
Pension advice, either managing or planning, is very important and that advice can greatly improve the amount you receive in retirement, or for your loved ones after death. What it will also give you is peace of mind that your pension money is safe and not falling foul of any risks/scams, and that you are being given ongoing, good advice.
If you would like to find out more about pensions and investments here in Spain or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris on the form below.