How to beat the pension scammers
Over-confidence, time pressure and being too trusting have all led to people being scammed out of their pension savings, new research has found.
Data from the Pensions Regulator and the Financial Conduct Authority found that scammers could wipe out 22 years of pension savings in just 24 hours. The research revealed some startling facts about how quickly and easily people can be scammed out of their life savings.
Almost two-thirds of people said they would trust someone offering financial advice out of the blue – showing how easy it is for scammers to cold call people and convince them to transfer their pension. What’s more, 63% of people think they are sufficiently confident to make a decision about their pension, which likely means they don’t seek advice or check their decisions with anyone else, also making it easier for scammers.
BEWARE THE LIMITED OFFER
On top of this, a quarter of people say they took less than a day to decide about a pension offer. Often scammers will use time pressure tactics to push people into making a decision. They’ll make out that the offer is for a limited time only, ensuring that people don’t have time to sense check their decision with other people or research it.
Honey Langcaster-James, a psychologist, says: ‘Scammers employ clever techniques, such as seeking to establish “social similarity” by faking empathy and a friendly rapport with their victims.
‘They can win your trust in a short space of time and by engaging with them you leave yourself vulnerable to losing a lot of money very quickly. People need to know how to spot the signs of a scam so they don’t fall for psychological tricks.’
Data from the regulators showed that the average amount lost in 2018 due to pension scams was £82,000, which they calculate would take 22 years for people to accumulate again. This was based on someone earning £28,000, seeing an annual pay rise of 2% every year, contributing 8% a year and assumed 3% a year annual fund growth.
SCALE OF THE PROBLEM MAY BE UNDERESTIMATED
Last year 180 people reported that they had been the victim of a pension scam, according to Action Fraud, which is the City of London Police’s unit for scammers. However, the scale of these scams is likely to be much higher as lots of scams go unreported, either because people don’t realise that they need to report it or because they are too embarrassed to admit they were defrauded.
Tom Selby, senior analyst at AJ Bell, says: ‘Hubris and trusting the “advice” of strangers are proving to be the undoing of scam victims. This is a recipe for disaster as fraudsters prey on the good nature of hard-working savers.
‘Sadly, despite interventions from Government and a drive to raise awareness, scammers aren’t going anywhere, so savers need to be more suspicious when they receive offers out of the blue. For many people their retirement pot could well be the most valuable thing they own, so spending a bit of time researching before parting with it could save a lot of pain.’
BAN NOT A COMPLETE ANSWER
A long-awaited ban on pensions cold-calling came into force in January this year, meaning that anyone who is caught could face a fine of up to £500,000. However, this won’t stop scammers altogether. Some will simply flout the law and continue to scam people by cold-calling, while others will set up call centres overseas, where the rules don’t apply. This means that just because it’s been banned you can’t simply trust any calls you receive.
What’s more, other forms of communication like text messages, emails and online posts are not explicitly covered by the ban, although they are covered by different regulations on unsolicited direct marketing.
How to avoid being scammed
1. Be wary of any investment ‘opportunities’ that come out of the blue (for example through a cold-call) or people claiming to be ‘advisers’ offering a ‘free pension review’. Professional advice is never free and so following the old maxim ‘if it sounds too good to be true, it probably is’ is a sensible approach.
2. Make sure you know who you are dealing with. After all, your pension could be the most valuable asset you own, so don’t hand it over to someone unless you know their credentials check out.
3. Slick fraudsters will sometimes pretend to be a bona fide company when in fact they are nothing of the sort, so have a look at the FCA register and Companies House to see if the firm with whom you are dealing actually exists.
4. Don’t be rushed or pressured – such tactics should set off a big red warning light in your mind and are often indicative of a scam.
5. If you’re at all unsure speak to a qualified, regulated financial adviser. You will need to pay for this but usually the benefit far outweighs the cost.