Pension Scams: The Obnoxious Side Effect Of Pension Freedoms
Pension-related scams have increased by a factor of three since the pension freedoms, the largest overhaul in the British pension system in a century, have come into force.
New UK-wide data released by the City of London police show reported losses from pension liberation fraud jumped 235 per cent to £4.7m in May — up from £1.4m in April when savers were given greater flexibility to spend their pension cash as they wished. The surge in fraud came as over-55s released more than £1.8bn from their pensions from April to May and officials renewed warnings that there could be a surge in pension scams. In pension liberation fraud, members of schemes are typically conned into cashing in their pots before they reach the minimum pension age of 55. Victims are often not warned of significant tax penalties and are sold bogus or high-risk investments. The data show that 3,704 reports of pension liberation fraud were recorded over a two-year period to May 2015 with losses totalling £25m. Average losses from pension scams during that time crept up from £14,000 to £15,000.
This leaves a deep scar in the finances of unfortunate British savers. But it also has damaging effect on the economy as a whole as the figure quoted above is more than likely to slip out of these shores to never return. These scams must therefore be dismantled as a matter of public safety as well as for economic concerns. The cure may seem self-evident: instructing people to pay more attention to such requests and treating with greater caution is the most likely and the most effective means at our disposal to combat this phenomenon. Although the maxim ‘easier said than done’ rightfully applies in this case, it does not provide grounds for out-of-hand dismissal. Simple steps can indeed be implemented to significantly reduce the success rates of these malicious organisations and cripple them as a result. Ensuring that these businesses are registered with Companies House and the FCA/FSA is easily verifiable and instantly gives away wrongdoers.
However, these tips are not taught to people being given access to their pension pots, which is a serious mistake. These preventive measures are practically costless and are frankly a matter of basic public safety. More should be done to communicate these vital due diligence methods to British savers. If that were the case, we would undoubtedly see a reduction in the number of successful scams affecting British future pensioners.