New state pension reforms have put savers at greater risk of being duped by scammers who are convincing people to part with their retirement fund and invest in fraudulent schemes.
The ability to access an entire pension pot at age 55, as announced in the Budget earlier this year, has already encouraged a new wave of pension fraud.
The government has already been battling 'pension liberation', which is where scammers offer access to pension money before the retirement age of 55 for a large fee – often 25% of the pension savings.
While this is not illegal, consumers are not typically told of the 55% tax bill they incur by accessing their pension early and in some cases the scammers have run off with their entire fund. In November 2013, the government estimated that £600 million of pension savings were at risk of pension liberators.
Pension liberation was also offered to those aged over 55 who wanted to access their entire pension fund. However, since chancellor George Osborne introduced new pension freedoms in the Budget earlier this year, everyone aged 55 or over can now access their entire pension fund as cash.
With over-55s no longer turning to pension liberators, the fraudsters have changed tack and are now encouraging people to access their pension money and invest in investments that are too good to be true.
James Dean, head of retirement strategy at Age Partnership, said liberators are now focusing their attention of attracting pension money into fraudulent investments.
"One of the things that we are concerned about is that although people can legally access their pension they are being enticed by unscrupulous [companies] to invest in unauthorised investment schemes that sound plausible but are not," he said.
"If you were told you were going to get an 8% guaranteed return it does not sound ridiculous, but for someone in the know, 8% and guaranteed do not go together."
He added that often the investments focus on something "that people are attracted to and they feel comfortable with like bricks and mortar".
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This is also the opinion of Hargreaves Lansdown head of research Tom McPhail, who said the schemes are trying to "attract the unwary".
"They will say: 'you're 55 and we have a great investment scheme so get your money out of your pension and we will get you 8% growth from a Costa Rican property development', and you will pass money over and never see it again," he said.
Government changes to the pension rules may provide consumers with greater freedom over how they spend their retirement cash but it has also given fraudsters a new way to target the unwary, which they do quickly and efficiently.
"Fraudsters ill use the noise and interest around pension freedom to try and inveigle unwary people into their schemes...The government has made it easy for fraudsters to piggy-back off its rules," said McPhail. "The scammers are much quicker and evolve fast. It is hard to track down the fraudsters and when they are tracked down it is difficult to prove the fraud.
"If you cut off one head, two appear."
Andrew Tully, retirement income technical manager at insurer MGM Advantage, said the new rules also meant it was more difficult for pension providers to prevent pension liberation and stop consumers investing in scams.
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Under the old rules, pension companies could block transfers to companies they suspected of being liberators but now a person age 56 can take their money and there is nothing the pension provider can do.
"Someone who is 56 can [go to their pension provider] and say can I have my money, and the provider cannot ask them what they are going to do with it," said Tully.
"People who take advice and guidance will know to be careful [with their money] but the question is when does a risky [legitimate] investment become a scam?"
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There are simple steps individuals can take to avoid pension scammers and falling foul of dodgy investments.
Dean gave four top tips for ensuring pension savings remain safe: "Firstly, make sure you do your research and get as much information as possible. Second, if it's too good to be true, it probably is. Third, if you're unsure then get advice from the likes of the Citizens Advice Bureau or The Pensions Advisory Service.
"Lastly, take your time and do not feel the need to [invest your money] instantly. It's the biggest decision you will make along with a house purchase. You can undo a house purchase by selling it but you cannot undo your investment [if you invest in a fraudulent fund]."
McPhail added that those aged under 55 who are offered the chance to access their entire pension should know they are still putting their money at risk of fraud and of incurring a large tax bill as the new pension freedoms do not apply to them.
"Everyone is going to get [free] guidance (as set out in the Budget) but that only applies in retirement, what about someone who is 48? The government is doing everything it can to give people their pension pots, but we need to be careful."
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