IoM issues pension transfer warning after rise in UK scams

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Renewed calls to review ‘unfair theft’ of overseas pension funds

Isle of Man Financial Services AuthorityThe Isle of Man Financial Services Authority (IoMFSA) has advised residents to tread carefully when making decisions about transferring or investing their pensions, following a rise in scams in the UK.

The regulator identified as series of ‘red flags’ that consumers should consider before making decisions about transferring their pension. “The red flags are not exhaustive and the existence of one or more of them does not necessarily mean that the arrangement is a pension scam. However, the red flags do indicate a need for scrutiny and caution,” the regulator said.

Jersey Financial Services CommissionThe IoMFSA consumer awareness initiative follows a similar move by the Jersey Financial Services Commission on Monday.

Unregulated financial advice

Pension scammers may recommend a particular financial adviser, pose as a financial adviser or claim to work with a financial adviser. “[IoMFSA] strongly recommends that you only take financial advice from financial advisers that you have independently checked are licensed or authorised to give financial advice.”

For financial advisers based on the Isle of Man, consumers should check if they are licensed by contacting IoMFSA.

FCA LogoFor financial advisers based in the United Kingdom, consumers should confirm that they are registered by the UK Financial Conduct Authority.

Unregulated investments and insufficient diversification Well-known scams include unregulated investment in a hotel, vineyard or other overseas investment opportunities. The investments may be worthless or sometimes do not even exist.

Even if the arrangement is not a scam, unusual investments such as overseas property, forestry, care homes or biofuels tend to be unregulated and high risk. “The risk to your pension is greater if you do not have a diversified portfolio of investments within your pension. In particular, where your pension is invested in one place or venture and the investment performs badly, you could lose all of your money,” IoMFSA said.

Consumers considering transferring their pension or investing some of their pension in unregulated investments should obtain advice from a regulated financial adviser unconnected to the investment company.

“If you speak to the adviser who suggested the transfer or investment, or an adviser who is indicated or referred to you by either the person who initially contacted you or the firm that you are considering investing with, you are unlikely to receive impartial advice.”

“You should also limit your risk by investing your pension in a diversified range of investments. Don’t put all your eggs in one basket.”

Cold CallingCold calls, unsolicited communications, and free pensions reviews Pension scams are typically initiated by cold calling or sending unsolicited texts or emails.

“To appear credible, scammers may claim that they are contacting you from government-backed or other official bodies,”

IoMFSA said. “However, these organisations would not make unsolicited phone calls or send unsolicited texts to offer a pension review.”

The regulator warned consumers to be wary of unsolicited communications and online adverts offering a ‘free pension review’.

“Professional pension advice is rarely free and should be obtained from appropriately regulated financial advisers.”

The UK government outlined plans to ban cold calling in November, where businesses would be forbidden from contacting consumers with whom they had no existing relationship.

Guaranteed and/or high returns

Pension scammers sometimes promise guaranteed returns but this can never be wholly guaranteed. They may also promise unusually high returns to attract investors, which can be tempting, especially given the low interest rate environment.
However, investors who fall for scams rarely see any of their money back.

“Be wary of promotions offering guaranteed and/or high returns.”

Pressure to make a quick decision

Scammers will often try to pressure people into making a quick decision to transfer their pension.

They may state that the offer is a “one-off” investment opportunity that is only available for a limited period or they may send a courier to your home to deliver or collect documents.

“Don’t be rushed into a decision. Take your time and make all the checks you need to satisfy yourself that the arrangement is legitimate and suitable for you before you decide to proceed.”

Upfront cash, early access, and higher lump sums

Tax LoopholesScammers may promise cash up front. Such payments can be described as a bonus, loan, cash incentive, advance, rebate, or commission.

Alternatively, scammers may say that consumers can access their pension savings before the normal minimum pension age or obtain a higher tax free cash sum.

“Accessing pension savings before the normal minimum pension age or receiving more cash than would normally be allowed may be illegal and is very likely to give rise to significant tax charges.

“Typically, scammers will claim to be taking advantage of a ‘loophole’ that simply does not exist.”

Some other things to consider…

“Don’t place too much reliance on professional looking websites, brochures or other documents, as it is easy for anybody to create credible looking websites or documents these days. People have fallen for scams by relying on recommendations from friends. Always carry out your own thorough checks and question everything before making a decision or signing anything.

“If you have any doubts, we recommend that you speak to an unconnected, regulated financial adviser.

If you have already signed something and you are now concerned that your pension could be at risk, contact the provider of your existing pension arrangement immediately – they may be able to stop a transfer that has not yet taken place.

“Remember – if it looks too good to be true, it probably is.”

Read the original story on International Adviser.

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