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Pension scams are costing savers £4 billion. How did it get this bad?

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The amount of money pensions scams cost everyday savers has reached an astonishing level. Of course, there has always been an element of pension mis-selling, but the scale has risen significantly since April 2015.

According to a report in The Times, scammers have used the money they have swindled from hardworking Brits to buy sports cars and fund champagne lifestyles.

How did the situation get so bad?

What Happened in April 2015

April 2015 was a significant month for the pensions' industry and a significant month for many pension holders. This was when the government relaxed pension rules, giving people over 55 more access to their pension pots.

In practice, this meant people could decide which schemes and opportunities they wanted to invest in. So, instead of a person's pension being managed by a professional fund manager responsible for tens and sometimes hundreds of thousands of individual pensions, they could make the decisions themselves.

Many went for this increased control for a variety of reasons. This included a wish to see higher rates of return from their pension savings.

What Went Wrong?

In theory, giving people access to their pension pots had benefits. Scammers, however, decided to take advantage, and the problem appears to be increasing.

How are they doing this? When you invest your pension pot, the scheme you invest in will fall into one of two categories:

  • An investment regulated by the Financial Conduct Authority (FCA)
  • An unregulated investment

Unregulated investments are regarded by the FCA as being high-risk investments.

Scammers focus on unregulated investments, presenting them as opportunities not to be missed and convincing unsuspecting pension holders to invest substantial sums of money – tens of thousands, hundreds of thousands, and sometimes even more.

Regulations in the UK forbid this from happening as financial advisors are only allowed to sell regulated investments to retail investors such as pension holders.

Legitimate financial advisors can sell unregulated investments, but they can only offer these schemes to experienced investors and high net worth individuals.

Scammers skip over this part of the regulations, however, to sell unregulated schemes to people with little or no investment experience.

Whether the intention at the outset is to take the money and run, or take the commission on the sale in the hope the investment will generate a return, the result is too often the same – normal people losing most or all of their pension pot.

It's a problem that is only getting worse. In 2016, the first full year under the new pension rules, five percent of pension transfers triggered warnings. Now in 2019, one-third of pension transfers trigger a warning.

What Should You Do?

If you have been offered an investment opportunity and you are thinking of transferring your pension, you should check to make sure the company or individual you are dealing with is on the Financial Services Register. This is according to Pension Wise, the government service that helps people understand the options they have when it comes to their pension.

If you have already transferred your pension and are concerned you are now the victim of pension mis-selling, you should get advice on what you can and should do next.

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