More than one in eight targeted by pension scams

How to spot if you are being targeted by pension fraudsters

Portrait of a retired senior couple calculating their personal finances at home

New research has revealed that more than one in eight people over the age of 50 have been targeted by pension fraudsters.

They promise their victims that they can free up money tied up in their pension before they hit the age of 55 - and get their hands on their 25% lump sum or more. Those who are taken in by this sort of scam will lose most - if not all - of their savings.

The way these fraudsters work is that they tell victims they can free up part of their pension, and then the rest will be invested for them - often with a guaranteed return. In order to get their hands on their cash they have to transfer their pension into the ownership of the business the scammers have established for this purpose.

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Often they will receive some sort of lump sum, but then the fraudsters will disappear with the rest of it. To make matters worse, because the pension investor has accessed their pension earlier than is allowed, they will also be hit with punitive taxes from the taxman.

There's a real concern that these fraudsters are cashing in on the uncertainty created by the changes to pension rules. Research from Fidelity found that two thirds of over 50s don't understand the rules around accessing their pension savings.

As a result many of them were unable to spot the scam. One in ten of those who were targeted by the scammers said they trusted the advice of the pension liberation fraudsters completely, while more than a quarter didn't pick up on the fact that it was a scam straight away.

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Spot the scam

Your best protection is to understand the rules. At the moment, the vast majority of people don't. The research found that 68% of people don't know the rules around accessing their pension savings early, while 23% of adults aged over 50 are not aware of the recent changes to regulation in this area. Furthermore, 59% of those who claimed they understood the changes, do not actually understand that they would still have to be 55 before they could access any of their pension.

As the rules stand at the moment - until April 2015 - you cannot access any of your pension until the age of 55 (unless you are terminally ill). At that point you can take up to 25% as a tax free lump sum. The rest is usually converted into an income, on which tax is also due.

From April 2015, at the point you retire you will be able to take as much or as little of your pension as a lump sum as you like. However, after the 25% tax free lump sum you will be taxed at your marginal income tax rate on any additional cash. You will still not be able to free up any of your pensions savings before the age of 55.

If you are approached by any firm which claims to be able to offer access before the age of 55, or access to a lump sum of more than 25% before April 2015, then they are promising something they cannot deliver.

The ABI says that pension scheme members should be wary of unsolicited phone calls or text messages offering early access to funds. They should also be worried if a firm claims to be exploiting 'legal loopholes' and those claiming to be able to offer 'cash bonus' loans against your pension or 'cash back."

As a final safety net, it says that if for any reason you are planning to transfer a pension you should get independent advice. This can be from an independent financial adviser, although the Citizens Advice Bureau and the Money Advice Service should be able to help.

If you think that you might have been the target of pension liberation fraud, contact the Action Fraud service on 0300 123 2040.

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