Sarah Coles, head of personal finance at AJ Bell, comments: “Three men are being sentenced for a £70 million pension fraud scam, which put significant slices of around 3,000 pension funds into worthless investments. It’s a horrible reminder of how criminals can destroy people’s retirement prospects, and why it’s so important to protect ourselves from scammers.
“The scheme worked by cold calling people and persuading them to have a ‘pensions review’. During the process, they were recommended to invest funds in a security called Ethical Forestry Ltd. Around 3,000 UK investors took money out of their pension funds and invested in what they thought was an environmentally sound forestry scheme in Costa Rica.
“Unfortunately, while trees were planted, no money was set aside to manage or harvest them, so there could never have been a return. Instead, funds were used to pay for the lavish lifestyles of the company directors.
“It’s a variation on a worryingly common theme, where scammers offer high risk, unregulated investment opportunities, which often promise sky high returns over short periods of time. These will sometimes come with exorbitant fees and levels of risk that haven’t been made clear to investors. The fact that they’re not regulated by the FCA or protected by the Financial Services Compensation Scheme (FSCS), means you have little or no protection if things go wrong. In some cases, the investment doesn’t exist, or will never pay out, and your money is used to line the pockets of criminals.
Five signs of a pension scam
“This is why it’s so important to do what you can to protect yourself from fraudsters and be aware of five signs of pension scams:
Any call, text or email out of the blue offering a review of your pension. Increasingly, approaches come through social media too. Cold calling isn’t permitted within pension regulations, so it should always ring alarm bells. As a general rule, if someone you don’t know contacts you about your pension, don’t engage with them.
Anyone promising early access to your pension. This simply isn’t possible within the rules, so is a sure-fire sign of a scam.
Anyone promising huge, guaranteed investment returns – often over relatively short periods. Risk and reward just don’t work like this: low risk tends to come with low returns, so this is simply too good to be true. The investments that scammers offer access to could include unusual things like forestry, but can look like relatively ordinary stock market investments too.
Anyone not regulated by the FCA. At the heart of scams are often unregulated ‘introducers’ selling unregulated investments. While there is nothing fundamentally wrong with investing in unregulated assets, there’s a risk they are being vastly overhyped. Even where it’s a real investment, if you’re the victim of mis-selling you won’t qualify for FSCS protection. If someone selling you a pension investment tells you they are regulated, don’t take them at their word, because fraudsters will sometimes impersonate a real firm. Instead, break contact, use the FCA website to check the business is regulated, find a phone number on the official website, and approach them yourself.
Anyone putting you under any pressure. This is a classic scam tactic, where you are told there’s a deadline and that you need to act fast. Never allow anyone to put you under pressure like this. Take the time to investigate the company and the investment, talk to people you trust, and if you want help with your options or are unsure what to do, consider speaking to a regulated financial adviser or visit the government-backed retirement guidance service Pension Wise.
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