What you can learn from three high-profile pension scams

As fraudsters become ever-trickier, savers must be better informed about how to protect themselves and their money. Here are three high-profile cons and what people with pensions can learn from them

Illustration: Sara Gelfgren

Pension fraud has been on the rise ever since the government introduced pension freedoms in 2015. The relaxation of legislation allows over-55s to access certain types of pension pots and, if they wish, take out all their savings in one lump sum. The significant assets people hold in their pots and the increased flexibility make them an obvious target for immoral or illegal activity. 

Government, regulators and pension providers are all involved in protecting pension investors. But it remains the case that it’s ultimately the individual who is expected to guard themselves against fraud. 

Over the years, there have been high-profile scams that highlight the importance of only dealing with legitimate organisations and seeking regulated advice.

1. Withdrawing lump sums for truffle trees

Professor David Blake, director of the Pensions Institute at Cass Business School, at City, University of London, believes the change in pension and tax rules in 2015 will turn out to be “one of the greatest catastrophes in British pension history”. Freedoms work by allowing people to convert their pension into an income drawdown account. Their money is invested in the stock market while they dip in and out of their savings.

Age UK has raised concerns about pensioners making regular high-value drawdowns. No investment is without risk and if markets turn and investments make losses over a prolonged period, there’s a serious possibility money will be exhausted.

Richard Butcher, chair of the Pensions and Lifetime Savings Association (PLSA), says it’s common for someone to underestimate how long they’ll live and how best to manage their drawdowns. “It’s quite frightening how few people can conceptualise quite how much money they need,” he says. 

Many, like Blake, believe this is a ticking time bomb. “What is going to happen when all these people have spent their pension pot and still have many years left to live?” he asks.

Meanwhile, scammers are offering people impossibly good investments for a chance to increase the value of their savings. They trick people to tap into their pension before they turn 55.

In one high-profile pension liberation scam, more than 100 UK investors learnt money truly doesn’t grow on trees. They were mis-sold saplings inoculated with truffle spores which turned out not to exist. Fraudsters encouraged transfers into a type of pension called a small self-administered scheme, or SSAS, which allows individuals to manage their own retirement funds, a set-up typically designed for experienced investors.

The truffle tree opportunity cost victims tens of thousands each, including a couple in their 40s. Against advice from their provider that this could be liberation fraud, they transferred £78,000 to a conman and lost track of their life savings. HM Revenue & Customs came after them with a surprise bill, as taking pension cash before the eligible age is subject to 55 per cent tax.

2. Dolphin Trust’s damage

Pension scammers pander to the human instinct of wanting a good deal. The Dolphin Trust, now known as German Property Group, offered investors the chance to entrust their pension savings in a scheme that would redevelop listed buildings in Germany and turn them into luxury flats. Investors were misled, many properties were left derelict and in July 2020 the firm filed for bankruptcy. It owes an estimated £378 million to people in the UK.

Financial planner Andrew Haley is helping someone left devastated by Dolphin. A regulated advisory firm encouraged his client to take £100,000 from their pension and invest it overseas. Instead of chasing high returns, Haley says his “client was simply trusting of the wrong people who took advantage of their lack of knowledge and experience”. They are now unable to retire until state-pension age at the earliest.

The Financial Conduct Authority (FCA) is investigating financial advisers who suggested UK customers invest in the Dolphin Trust and some self-invested personal pension scheme, or SIPP, operators that held people’s mis-sold investments.

The scandal raises questions about whether regulated companies should accept investments from people who didn’t receive regulated advice and how fair is it that the risks aren’t shared? Pension holders should always err on the side of caution when considering who they trust with their money.

3. Rise of the clones

This advice is especially important when it comes to navigating the Wild West of online duplicity. The FCA recently issued a warning over “clone firm” investment scams, as Action Fraud reported more than £78 million of clone-related losses in 2020. The tactic is increasingly popular in the pensions sector, with fraudsters jumping on confidence in well-known brands.

Last summer, a clone masqueraded as Aviva. Peter Hazlewood, group financial crime risk director at Aviva, says: “We’re working round the clock with the authorities to have these types of websites taken down. Unfortunately, as soon as one is taken down, a new one inevitably pops up.”

Victims of this scam tend to be people approaching retirement age who have access to their pension pot and are browsing the internet in the hope of finding higher returns. Warning signs of clones include low-quality images on websites, poorly written copy or missing contact details. Butler at the PLSA was once nearly reeled in by a message purporting to be from a government website, until he realised the url ended in “.guv”.

Mark Steward, executive director of enforcement and market oversight at the FCA, says: “When it comes to clones, I cannot emphasise enough how important it is to double-check every detail. And remember, if it looks too good to be true, it won’t be true, so don’t invest.”

The FCA’s warning list of identified clone companies is updated daily. Unfortunately, if people don’t use FCA-authorised companies, they don’t have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme and it will be even more difficult to get any money back if things go wrong.

High-profile scams raise awareness of the various predatory tactics out there and the importance of working with trusted and regulated advisers. With the stakes so high, pension savers should remain hyper-alert to any red flags.