Many people do not realise that investments made into pension scams are not protected.
Whilst the FSCS protects £85,000 worth of savings and accounts held by individuals and small businesses in banks, building societies and credit unions that are authorised by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), any investments you make with other companies are not protected.
We want to share a real-life story with you to make you aware of some of the pitfalls.
Bill is 53 and due to retire in 12 years. He recently re-mortgaged his house to pay for his daughter’s university fees. He has been in a pension scheme for more than 30 years and his pension pot is now valued at £114,000. He decides to find out about accessing his pension early and searches the internet for ‘early pension release’.
Sure enough, he finds a website offering pension release and he submits his contact details and receives a call the same day. He is told he can have 5% of his pension in cash immediately and the rest will be invested in UK storage facilities. This investment will generate a guaranteed 8% return. The company sends Bill a courier and he signs the paperwork. This is the point of no return, he is now committed. A week later he receives £5,700 (5% of his pension).
After a few weeks Bill calls the company to find out about his investment, but he can’t get through because the number is engaged. Feeling worried, he looks up the company address and goes to the offices only to find that the company at the address says they are not responsible and he is given a different telephone number to call. Surprise, surprise, that number is also always engaged.
Finally, Bill contacts Action Fraud and is told that it is likely that he has lost his entire pension. Then, to top it all he receives a letter from HM Revenue & Customs (HMRC) which informs him that he owes £62,700 which is an unauthorised payment tax charge.
Bill has lost £171,000.
So, what did Bill do wrong? He was too focused on getting his cash as quickly as possible. He didn’t check out the company to see if it was on the FCA Register. He was lulled into a false sense of security with the small cash payment and was attracted by the high rate of return offered for the rest of his pension money. He fell victim to high-pressure sales techniques and signed papers delivered by courier immediately without taking time to collect his thoughts. He broke rules by accessing his pension before he reached the age of 55 which meant that HMRC levied a large tax charge despite the fact he had lost his pension.
What Bill should have done
First and foremost, he should have taken his time and checked out the company. It’s easy, go to the FCA Register to see if the firm you are considering is listed and whether your funds are protected or contact The Pensions Advisory Service on 0300 123 1047.
Secondly, he should have done more research and possibly contacted a registered, professional, independent advisor or talked to his bank or building society.
Why would you spend 30 years saving and then make an investment decision about your pension in a few days?
What to do if you have been scammed
If you do become a victim please report it to Action Fraud and if you have signed papers and realise it is an investment scam report it straight away to Action Fraud by calling 0300 123 2040 or online.
The Financial Conduct Authority also has a Consumer Helpline on 0800 111 6768.
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