Stopping pension scams is the top priority for the watchdogs tasked with safeguarding financial services for consumers in the UK.
In a speech to IFAs, Financial Conduct Authority (FCA) technical specialist Rory Percival admitted the industry is teeming with fraudsters and the risk of falling victim to a scammer has risen dramatically with the introduction of pension freedoms.
The FCA wants retirement savers to take impartial advice before drawing any cash from their pensions under flexible access.
“Scammers have always been in the market, but their pool of potential consumer victims has increased significantly with pension freedom,” said Percival.
The problem for consumers is identifying an honest, experienced and qualified adviser.
Pension advice for expats
Even taking advice from an FCA regulated adviser does not necessarily mean consumers are not pointed towards risky or dubious investments. Plenty of regulated IFAs are penalised for failing to give consumers the advice they need and deserve.
The problem is even worse for expats wanting to switch their UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS are offshore pensions that include tax and investment features and benefits for some expats.
HM Revenue & Customs (HMRC) warns expat pension savers that they have a personal obligation to check the QROPS accepting their pension transfer meets all the rules of the scheme.
These rules are so technical and written in such obfuscated language that even professional lawyers and pension administrators cannot work out whether a QROPS is legal or not.
Australia QROPS fiasco
Take the recent Australia QROPS fiasco. Australia was home to more than 1,600 QROPS schemes until July 2015. Now, Australia has less than 10 schemes.
Australia has had QROPS pensions since 2006 and the likelihood is many of them never met QROPS standards.
HMRC banned 1,650 Australia QROPS because they offered payments to retirement savers below the minimum retirement age. This test was enforced from April 2015 but has always been written into QROPS rules.
Identifying a scammer is not easy. Some tell-tale signs, according to the FCA, are:
- You are contact by a cold-call or unsolicited text or email
- You are offered a free government pension review – there’s no such thing
- The investment potential is unrealistic or the investment is offshore and high risk, such as carbon credits, plantations or hotel resorts
If you are contacted and offered a dubious service by a so-called financial adviser, check that they are regulated and authorised to give advice in the country where you live. In the UK, the FCA keeps a register of regulated advisers – most other countries have their own regulator.