The City watchdog last week warned of a new wave of pension scams after uncovering evidence of people being cold-called and offered a “free pension review”.
The callers typically say they are working on behalf of the government or the Financial Conduct Authority (FCA) and claim they can help people get better returns from their pension savings.
Some purport to be acting on government plans to give savers free pension guidance at retirement, but that initiative is still in the early stages of planning.
Instead they are seeking to persuade savers to transfer cash from personal pensions and self-invested personal pensions (Sipps) into high-risk and unregulated investments that could leave victims destitute in their later years.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: “If you are called out of the blue to discuss your pension, just hang up. Your pension is far too important to be put in the hands of a cold-caller.”
The warning came a day after the Financial Ombudsman Service (FOS) reported a rise of almost 50 per cent over the past 12 months in complaints about Sipps. It said most were from people who had been advised to invest in “unregulated collective investment schemes” (Ucis) within a Sipp.
“These complaints usually came from consumers who had been looking for better returns than they could achieve through more conventional investments,” said the FOS. “But the consequences of investing in some of these higher-risk funds can be extremely serious. We have seen cases where consumers have lost all the money they invested.”
Ucis were the subject of a previous FCA alert this month over firms advising savers to transfer their pension cash into “non-mainstream” investments within their Sipps.
It said such investments were often illiquid and carried a high risk of heavy losses. They are also unregulated, meaning victims don’t typically have recourse to either the FOS or the Financial Services Compensation Scheme.
The sale of such investments to ordinary investors was banned earlier this year following evidence of mis-selling. But while they should now only be promoted to high net worth and sophisticated investors, they continue to be sold widely within Sipps.
And more investors could be targeted by high-risk investment schemes when rules take effect next April making it easier for people aged 55 or over to access their entire pension pot.
Graeme Mitchell, managing director at Lowland Financial in Galashiels, said: “As a result of the changes I firmly believe people will pay much more into pensions now. But with more in pension funds and people always looking for a quick get-rich scheme – and plenty of people ready to come up with schemes to make money – it’s likely to become a bigger problem.”
For one investor the damage was already done before he turned to Mitchell for help.
“He wanted to boost his pension funds as he approached retirement and was encouraged by another adviser to invest his pension funds in a property fund which turned out to be unregulated,” said Mitchell.
“This was way beyond his risk profile, and following the property crash he lost every penny. To add insult to injury he had to keep paying Sipp fees for a plan with no value.”
Land banking and carbon credit schemes also feature prominently in high-risk investment plans sold through Sipps.
But however impressive the returns may sound, it remains the case that if it sounds too good to be true, it almost certainly is.
“If you need spectacular returns near to retirement to balance the books you are in danger of putting everything else at risk,” said Mitchell. “Instead, rethink the options for the retirement plan, look at practical ways to cut expenditure or possibly work a bit longer if you can.”