By Dale Critchley, Policy Manager, Aviva
It’s not a new phenomenon. Scammers have always been around, but they usually ramp up their efforts when they know people will be at their most vulnerable. Right now, people are worried about their health, their families, and their finances. It’s the perfect breeding ground for con artists.
And they can mobilise their operation quickly – Action Fraud, the UK’s national reporting centre for fraud and cybercrime, reported a 400% increase in corona-related fraud reports from February to March.
The Association of British Insurers (ABI) has compiled a list of the potential ways scammers can try make themselves seem genuine.
The ones I get asked about are around pensions. Pension scams are particularly popular at times of economic difficulty because it’s the one asset that scammers know we’ll have. The scammers will either target those in need of cash through an offer of early access to a pension (typically aimed at someone under 55) or use the opportunity created by the market downturn to offer big investment returns.
As pension professionals we know the rules. Apart from in very specific circumstances (an old scheme with a retirement age of 50, a specific occupation or terminal or long-term illness) accessing your pension before you turn 55 isn’t authorised. If you’re contacted by someone claiming they can do it, it’s a scam, and if you go head, one of two things will happen:
1) They’ll take all your money and you’ll never hear from them again.
2) They’ll take a large chunk of your money as a fee and pass the rest to you. After which, HMRC will ask you to pay 55% in tax on the total taken out of the pension, leaving little for you.
But if you’re falling behind with bills, a professionally produced brochure about pension loans (that many won’t understand), claiming to be able to put cash in your pocket today, may sound appealing.
The second type of pension scam is where someone offers you better returns. The ban on cold calls about pensions has helped, but like playing whack-a-mole, the scammers have popped-up elsewhere, often now using social media to identify and contact their targets.
Scammers can amplify the messages seen in the mainstream media about “zombie funds” and “rip-off pensions” to present an alternative, low risk, high return nirvana through investing in hotel rooms, car parks, land or whatever else they come up with. We’ve seen scammers exploit a lack of understanding to compare DB revaluation rates with DC returns and persuade people to move out of secure pensions in favour of high charge, high risk investments which often have no secondary market.
Promises of better returns can be very attractive, and mistrust in pensions can easily be stoked up amongst a population that’s more comfortable investing in real assets like land and property than shares and bonds.
We need to do all we can to stop the scams and alert the public to the problem. At Aviva we’ve launched our own online scam reporting service. Anyone concerned about fraudulent activity that mentions Aviva or their pension can pass on the details to us.
Our Financial Crime Intelligence Unit will then investigate and give personal guidance on what action to take.
Although we can do a lot to close down scams, financial education and understanding around pension saving is key. Most ‘get rich quick’ schemes have a loser, and while it’s a cliché, if it seems too good to be true, it probably is.
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