‘It’s been an area that is ripe pickings for fraud,’ said Jane de Lozey, joint head of fraud at the SFO. ‘Pensions are complex and have a mystery to them. People don’t understand them and this leaves them open to abuse.’
GP Noble: ‘smash and grab’ fraud
De Lozey knows all about pension fraud as she worked on the GP Noble case – one of the most high-profile pension fraud cases in recent history. The case started four years ago, and has so far spawned three criminal trials and one civil trial, with another trial due for October. So far £30 million has been recovered from the £52 million GP Noble fraud.
Of the GP Noble fraud, de Lozey said: ‘It was eye-opening to see how easy it is to commit pensions fraud. GP Noble was a smash and grab fraud, the equivalent of ramming into an ATM machine – it showed how easily you can steal other people’s money.
‘The GP Noble fraud is straightforward compared to what we are seeing now. Fraud has been elevated now in terms of complexity.’
It is because of this increased complexity that the SFO is helping to set up a pensions fraud taskforce, working alongside the Department for Work and Pensions, HM Revenue & Customers, the Economic Crime Council, the Department of Business Innovation and Skills, the National Crime Agency, The Pensions Regulator and the Financial Services Authority (FSA).
‘The joint taskforce will specifically target pensions, because we have seen an increase in the number of fraud cases with a pensions angle, and the self-invested personal pension (Sipp) angle has increased a lot in the last year,’ de Lozey said.
As Sipp savers have control over what they can invest their money in, the fraud often centres on investment. People are encouraged to invest their pension schemes in high-risk investments, many of which promise returns they cannot deliver.
The SFO has seen an increase in overseas property development fraud, with savers encouraged to invest in everything from hotels to golf courses and student accommodation.
Bio-fuel and sustainable energy investments are also being marketed at Sipp investors as a reliable investment for their pension pot.
‘Some of these investment are offering 16% returns – this should set the alarm bells ringing. Also, anything that says income is guaranteed,’ said de Lozey. ‘We see claims that money is guaranteed because it is held in escrow accounts. It is our experience that these claims do not stand up.
‘If something is too good to be true, then that is usually the case.’
Many of the investments being pushed to pension savers are unregulated collective investments (Ucis), which are not FSA regulated and are not covered by the Financial Services Compensation Scheme should something go wrong.
Ucis are often based in foreign countries away from the prying eyes of regulators, and de Lozey has straightforward advice: ‘Some jurisdictions are unstable. You have to ask yourself whether you would buy a holiday home there and if not, why would you invest in a rainforest development there? It could be a very costly mistake.’
Unlock at your peril
Pension unlocking, or ‘liberation’, is an area attracting fraudsters. They allow savers to access their pension fund early for a large fee, but fail to explain the tax penalty savers will be hit with in retirement.
‘People are unaware of the [tax] rules. Quite often people who are in financial hardship are targeted [by pension unlocking scams]. They think, “it’s my money so why can’t I have it?” and they are working with an adviser who they think is acting in their best interest, but then they are hit by a tax whammy,’ de Lozey said.
‘People are paying a huge upfront fee [to the pension unlocking company], and then when they get to retirement they take another hit.’
De Lozey has been targeted by pensions unlocking companies through unsolicited texts, and warns people to stay clear of companies that cold call.
She recalled one independent financial adviser who was cold called. He did not tell the company he worked in finance, and they told him if he did not unlock his pension now he would end up owing the pension company money in retirement – a situation that could never happen.
‘The scams we are seeing are highly organised, run by professional people with credibility who have worked in finance and have good contacts. Some of these people are very clever – they may be selling things that sail close to the wind and target unsophisticated investors,’ she said.
One of the problems with pension fraud is that people are often unaware they are the victim of a scam until they come to retire years down the line, when the fraudsters are long gone.
‘We suspect there are many pension fraud schemes, and many people will be unaware they are victims of crime. They will not know they are victims until 15 years down the line when they try to drawdown their pension and realise their fund has been dissipated,’ de Lozey said.
She added that often victims of fraud feel guilt and embarrassment.
Trust your instincts
The people running pension scams are sophisticated and persuasive, de Lozey warned. Many have a background in financial services and know the jargon.
‘Because pensions are complicated, because there is lots of mystery and jargon, we hand over control and we hand over our money,’ she said. The best advice de Lozey has is to ‘trust your gut’, and if something seems too good to be true then it probably is.
‘Do not be fooled by the suits and flash cars. Do not think of this person as a professional, but as an ordinary person and ask yourself: do you trust them? If we listen to our gut then our instincts do not let us down.’
If you believe you have been targeted by a pension scam contact, Action Fraud.