Financial Scams are targeting your emotions
Throughout your working life, you are encouraged to save money for retirement and invest your savings in a varied portfolio to finance a comfortable retirement. As you build your nest egg, you are bombarded with advice, information, and opportunities for how to invest your money, along with dire predictions of a destitute old age if you do the wrong thing.
You singularly bear the burden of choosing whom to trust, deciding where to park your savings, and learning how U.K. pensions or U.S. Social Security plans work and change. None of the knowledge you need to do this is taught in either country’s schools.
When an attractive offer is presented that allows you to substantially add to your savings later in life, it can be a great relief, replacing a sense of vague apprehension with a clear, sensible plan. It’s easy to see how you can be swept away by the promise of a fully-financed retirement through one simple transaction. And that’s how the scammers get your money.
Scamming is a big industry
In 2021, there were more than 92,000 U.S. seniors over 60 who reported their fraudulent experiences to the FBI. Combined, they lost $1.7 billion, a 74% increase over 2020. Nearly $2.4 million was lost to investment scams alone.
It is a similar story in the U.K., where the 2021 average amount lost to pension scams more than doubled from 2020. According to Action Fraud, the average personal loss in 2021 was £50,949, compared with £23,689 in 2020. The losses in each case ranged from less than £1,000 to as much as £500,000, but the actual figures could be higher, as many scams go unreported.
How you’re contacted
If you receive a phone call, email, text, social media ad or other communication from a company who you did not contact first, be wary. Legitimate companies do not cold call people with retirement offers. Since 2019, unsolicited calls about your pension are illegal.
Beware of official-looking websites encouraging you to fill in your details. This is a method that scammers use to get around the pension cold calling ban. Do not enter your personal information in any online ad. Once you’ve given them your information, they are free to call you.
Many seniors are lonely and are eager for the opportunity to talk with someone. Scammers use this opportunity to sound professional, polite, and friendly. They know that the longer or more often you’re on the phone with them, the more likely you are to accept their offer.
If the company does not allow you to call them back, don’t do business with them.
What they say
Scammers use your emotions to urge you to act. As you worry about current inflation levels or medical bills eating into your savings, you’ll see advertisements offering free pension reviews or no-obligation consultations, which can sound like a good idea. The idea is to sell you a product that will eliminate your fears.
Certain words and phrases are good indicators of a potential scam: ‘pension liberation’, ‘loan’, ‘loophole’, ‘savings advance’, ‘one-off investment’ or ‘cashback’. Anyone who promises a ‘guaranteed profit’ should cause skepticism, as genuine investment companies go out of their way to let you know that there are no guarantees in investing.
‘Once-in-a-lifetime’ opportunities, often based on ‘inside’ or confidential information are common. The terms ‘one-off investments’, ‘limited-time offers’, ‘upfront cash incentives’, ‘legal loopholes’ or ‘government initiatives’ are good indicators of a scam.
Maybe the most offensive scam of all is secondary scamming, where they approach people who have already been scammed and offer to help them get their money back in return for a fee.
If they say, “leave everything to me,” you may do just that.
What they offer
A current popular scam targets people on social media with International Self-Invested Personal Pensions (SIPPs). These are genuine financial products that authentic advisors use. The scammers use this fact to provide ‘guidance’ for people to transfer their funds to the SIPP they’re selling. When regulated advice is required, people often go ahead and complete the money transfer, even though they were advised against it. The scammers are able to ‘coach’ people through the process and convince them that the transfer is in their best interest. Some of these types of losses have been in the millions, but the average loss to each U.K. victim is around £75,000 (Action Fraud 2021).
An ‘offshore’ investment may be presented, where you send your money abroad. Unusual high-risk investments, which tend to be overseas, may be unregulated, with no consumer protections. If your money leaves your country and something goes wrong, it’s more difficult to find out what happened and locate your money.
Classic financial scams promise better returns or interest rates than are offered elsewhere. Scammers will present their product as being ‘low risk’. In the U.K., they will recommend you fund the purchase by pulling cash from your pension before the age of 55, sometimes known as ‘pension liberation’ or a ‘pension loan’. Only in very rare cases, such as very poor health, is this legally possible.
Another tactic is to promote a product with a complicated investment structure, or there might be many people or firms involved. The more people involved, the more likely it’s not legitimate.
Other financial scams are based on fixed-term pension investments. In these scams, you may transfer money and then not realize something is wrong for several years.
Turning up the heat
The scammers win once you’ve made your decision and act. If you’re forced to make a quick decision, or are pressured to ‘act now’, beware. Anytime someone is offering a ‘limited time offer’ or there are deadlines to get the deal, step back.
Often, they’ll send a courier with the documents for you to sign, and the courier will wait until you’ve signed them. Paperwork should never be signed under these conditions.
Turn the tables
The Financial Conduct Authority (FCA) in the U.K. conducted research to learn how people are being tricked into financial scams. They found that half of pension holders would be unlikely to make an impulse buy in a retailer’s flash sale, but 36% could not recognize “time-limited offers” as a sign of a possible pension scam.
They also found that pension savers could be nine times more likely to accept advice from someone online than they would from a stranger in person. Just 1.1% of pension holders would take advice from a stranger, but 9.95% would accept financial advice online.
The FCA’s advice is to “flip the context” if you’re approached with tempting offers online. Do this by imagining how you would react if the same offer was made by a stranger in a pub, for instance. “Imagine a stranger in a pub offering free pension advice and then telling you to put your savings into something they’re selling. It is difficult imagining anyone saying yes to that.”
Chris Lean, senior financial advisor for TailorMade Pensions, a company of Aisa International, advises that this one action could eliminate most financial scams : “Ring the number of the firm published on the FCA website who claims to be giving the advice, and ask for their Terms of Business. Ask them to confirm the identity of the adviser giving you the UK registered advice in the email they send with the Terms of Business from the UK company email address.” Chris goes on, “If an offshore firm is using another FCA registered pension transfer specialist, speak directly to that pension transfer specialist and question him/her about the advice you are being given by the offshore adviser and ask him/her to confirm if a transfer is in your best interest.”
Use these online resources to verify the company you’re working with.
In the U.K.: Financial Conduct Authority (FCA)
In the U.S.: U.S. Securities and Exchange Commission (SEC)
Reporting financial scams :
Pension Scams Industry Group has compiled a list of questions for you to ask your advisor.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
- Pension Scam Predictor
- Pension Scams- what you can do to avoid them (Part 2)
- FCA launch anti-Pension Scams and Unregulated Illiquid Investments crackdown
- Three-month defined benefit pension transfer freeze
- The Pensions Scorpion Campaign
Share this story