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Pension liberation fraud – what to look out for

The pension freedoms introduced by the government in April this year may have represented a brave new world for millions of savers when it comes to financing their retirements. But unfortunately, the reforms also appear to have provided fraudsters with a prime opportunity to exploit unsuspecting members of the public.

Know the warning signs

Recent police figures show that losses from a type of con called "pension liberation fraud" – where savers are encouraged to illegally cash in their savings early – more than trebled between April and May. And research from investment firm deVere Group published this week has found that almost a third of its clients have been approached by potential scammers since April’s changes were introduced.

The reforms mean that individuals have much more choice over how to use their pension savings when they reach retirement. But fraudsters seem to be taking advantage of the situation to market dodgy or non-existent investment schemes.

So what are the most common types of pension fraud and how do you avoid them? The Pensions Regulator has just issued a guide to what savers and retirees should be looking out for.

Offering access for under-55s

Pension liberation is one type: this involves being able to get hold of money saved in a pension fund before the age of 55. Under normal rules, only those in seriously ill health can do so legitimately. Anyone else faces huge tax charges – but the scammers will not mention these, and may try to convince victims that the new rules mean such access is now permitted for the under-55s.

Being contacted out of the blue

Alternatively, criminals may offer a free pension review, ostensibly to advise on suitable investments – and they may even claim to be calling from a government-approved body such as The Pensions Advisory Service or Pension Wise.

The “review”, however, invariably recommends investments that promise high returns but are in reality either bogus or very unlikely to deliver.

The Pensions Regulator says that savers should be very suspicious of companies contacting them about their pensions out of the blue, and points out that advisers’ credentials can be checked on the Financial Conduct Authority’s website. The FCA also publishes details of known investment scams.

Be careful also when searching for advice online: a lot of fraudsters use genuine- or official-looking websites to lure their victims.

Other alarm bell ringers

Other warning signs include investments that promise returns of 8% a year or more; paperwork delivered by courier that requires an immediate signature; transferral of money overseas; or an investment that would use up all of your pension cash. The regulator points out that bona fide advisors would almost always recommend diversifying your holdings.

"If it sounds too good to be true, it probably is."

If you or anyone you know thinks they may have fallen victim to a scam, contact Action Fraud, the fraud and internet crime reporting centre.

It is no surprise that criminals are trying to profit from confusion over the new pension rules, and undoubtedly the amount of financial crime related to pensions will rise this year. The old investment maxim, therefore, is more relevant today than ever: "If it sounds too good to be true, it probably is."