High court ruling could open the floodgates to pension scammers.

29th April 2016

Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, looks at what the recent High Court decision on pension transfers means for individuals and pension scammers.

Until recently, pension providers had the power to refuse to make a transfer if they had concerns about where it was going. This acted as a major line of defence in preventing pension scammers from accessing individual’s pensions and savings.

However earlier this year, the High Court overturned a Pensions Ombudsman decision that sided with Royal London who refused a suspicious £8,000 transfer to a small self-administered pension scheme (SSAS) in 2014. There is now serious concern that this ruling could lead to pension savers using the verdict as proof that their transfer requests should be approved, opening the floodgates for scammers to prey on the unsuspecting.

Pension providers are now in a very difficult position. Do they prevent transfers which they consider to be of concern and risk a court case, or do they allow the transfer, and no longer provide that crucial line of defence against pension scammers? They are dammed if they do and dammed if they don’t.

What this means for individuals is that the responsibility for making the right decisions now rests firmly in their hands. However, a recent study from Citizens Advice found that nearly 90% of people would fail to spot the common warning signs of a pensions scam.

The issue is that scams don’t looks like scams. They look and sound legitimate, with professional looking websites and literature, which is why people are hoodwinked. In WEALTH at work’s financial education seminars, adverts from organisations that are ‘too good to be true’ are shown to prove how hard they can be to spot.

Some scammers will approach it as an investment or business opportunity. For example, there have been recent reports of fraudsters targeting pension savers in a new scam offering opportunities to invest in parking spaces, promising attractive payouts which never come to fruition. Remember, if it looks too good to be true, it probably is.

Legitimate investment companies are also very unlikely to cold call. The people that run pension scams are clever and often get hold of personal details not just about an individual, but their local area and interests. They are often very knowledgeable and incredibly friendly, which can catch even the savviest people off guard.

Genuine advisers and investment opportunities will never rush someone to make a decision. Be very wary if documents are urgently couriered to you for signing and if you are being encouraged to take out a large lump sum, or to transfer your pension money quickly. Watch out for promises of being able to release your pension early, as they normally can only be accessed after you reach 55. Scammers will also downplay the risks to your money and use confusing legal jargon, offering unusually high ‘guaranteed returns’. Scam buzz words to be vigilant of include, ‘legal loophole’, ‘free’, ‘time limited’, ‘no risk’ and ‘one-off and unique investments’.

The most important rule is that whatever investment someone is planning to make, it is important that they check out the company with the Financial Conduct Authority (FCA) first at www.scamsmart.fca.org.uk. If they haven’t heard of them then there will be no place to go if the investment turns out to be a scam.

Pension providers are likely to continue to watch out for their customers, and warn them if they are concerned about a transfer they want to make. However if someone has really been taken in by a scammer, and they insist on the transfer, the High Court ruling may mean that the provider will no longer stand in their way.

Further coverage can be found in Money Observer.

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