Pension scams are on the increase. Make sure you aren’t a victim

Category: News

In the past year, the UK’s financial regulator, the Financial Conduct Authority (FCA), has recorded more than 30,000 instances of unregulated financial activity. There are clear signs that pension scams are on the increase.

Unscrupulous salespeople are persuading unsuspecting individuals to transfer their accrued pension fund into inappropriate offshore arrangements.

Scammers have been known to target people moving abroad – either emigrating or returning to their original country after spending some time here in the UK. This means that anyone moving from the UK to Australia is likely to be a prime target.

There are signs that scammers are using sophisticated campaigns over social media to con people out of their hard-earned pension savings.

In this article, read about how people are being targeted, and how to spot a scam.

You’ll also find out more about qualifying recognised overseas pension schemes (QROPS). These are the legitimate vehicle used by regulated financial advisers, including ourselves, to transfer pension assets from a UK scheme to an overseas pension – such as a superannuation scheme in Australia.

Freedom for pensions, but opportunity for scammers

One of the main causes of the increase in pension scams is the liberalisation of regulations around pensions (Pension Freedom) by the UK government in 2015.

The changes, designed to promote greater choice for consumers when it comes to taking their pension, have led to increased problems – particularly for people unsure of the changes. It has left many people susceptible to being persuaded to make a decision that isn’t in their best financial interests.

Speaking to a parliamentary committee in January 2021, an FCA spokesperson told MPs that “…it is very clear that there is a correlation between pension freedoms and the way in which a scammer or fraudster is going to use this as an opportunity”.

The FCA are trying to be more proactive when it comes to tackling pension scammers, but they have made it clear that there needs to be a greater investment into preventing consumers from handing over their pension money to scammers in the first place. Because of a lack of resource, they have stressed the importance of consumers being aware of the pitfalls and how to avoid them.

How scammers operate

People with UK-based pension funds who are now living overseas, or planning to move soon, are often persuaded by scammers to transfer some, or even all, of their pension into an offshore unregulated collective investment scheme (UCIS).

A UCIS is a pooled investment that will invest client money in various assets. Many of them will promise high investment returns. Typically, they will involve overseas investment opportunities such as property development or renewable energy.

However, such schemes are not subject to the same regulatory controls as standard investments and, as such, are riskier.

UCIS structures are often opaque and can result in clients paying extremely high charges for setting up the scheme and managing it, as well as adding additional costs for taking money out of the plan.

QROPS – the safe way to transfer your UK pension to Australia

The safe, and legitimate way to transfer your accrued UK pension overseas is by using a qualifying recognised overseas pension scheme (QROPS).

The UK government first introduced QROPS in 2006 to help streamline the pension transfer process and provide a level of protection for consumers.

Before it can accept a transfer from a UK pension, a scheme must be qualifying, and the onus is on the receiving scheme to ensure it has that status.

There is now a four-step process for a scheme to qualify as a QROPS:

  1. The receiving scheme must be a pension scheme.
  2. The scheme must be registered overseas.
  3. It must be a recognised overseas pension scheme (ROPS).
  4. It only becomes a “qualifying” scheme when it receives official HMRC approval.

You can then move your pension fund abroad to schemes on the ROPS list, which is based on self-declarations that the schemes meet the ROPS requirements.

As such you will need to ensure the scheme is suitable. The best way to do this is to take advice from a firm operating from a well-regulated jurisdiction who take professional responsibility for selecting an appropriate ROPS.

Before transferring a pension overseas, the ceding UK-registered pension scheme should confirm the status of the receiving scheme.

But even with a QROPS you should be on your guard

Even with the implied protection offered by a scheme with QROPS status, there are still instances where consumers have lost large sums of money to scammers.

A recent investigation carried out by the Daily Mail has revealed how savers lost up to £10 billion in UK schemes registered with HMRC and the FCA.

Some of these clients believed their money was safe only to find that, once their funds were transferred abroad, they were raided by scammers for large sums of commission and charges. Additionally, when they tried to transfer out, they were charged substantial exit penalties.

Get in touch

Get in touch with us if you’re thinking of transferring your pension fund to Australia, or if you think you might have already been the victim of a pension scam.