How to Avoid Pension Rip Offs
With new freedoms come new risks
Last week’s BBC Panorama show entitled ‘Pension Rip Offs Exposed‘ highlighted a conundrum for people saving for their retirement. The reality is there are a lot of excellent pensions doing a great job for investors that will provide a fantastic retirement income one day. Unfortunately, there are others that are not so good and a worrying number that are verging on ‘scams’ with unscrupulous sales people all too keen to get their hands on your money.
For the average person, it can sometimes be difficult to distinguish the good from the bad; and the ethical, qualified adviser from the rogue salesman. All this has led to some unfortunate people being ripped off, losing their pensions and their chance of a great retirement. We want to help draw attention to this and help you avoid the pension rip offs.
Planning for retirement is one of the biggest financial challenges we face. We are living longer, interest and annuity rates are lower than ever and generous ‘final salary’ pension schemes are becoming rarer. It all makes for a tricky challenge to ensure we can have the retirement lifestyle we want when the time comes.
Last year, the Government introduced as new set of ‘pension freedoms’ allowing everyone access to their pension from age 55. No longer would anyone be forced to draw their income slowly within predefined limits or purchase an annuity (a guaranteed income for life), their money was theirs to take as they wanted.
However, with these new freedoms has come an unwanted side-effect – more and more unscrupulous individuals and companies are trying to get people to part with their hard earned life savings in return for the promise of untold riches and mind-boggling returns. This was highlighted last week by BBC Panorama in ‘Pension Rip Offs Exposed’ which documented the sad story of people who had transferred their pensions to invest in a high risk overseas property investment and suffered the results. It also exposed the shocking tactics that some ‘salespeople’ go to in order to clinch their sale – even when they know it will negatively impact their ‘client’
This is a really big problem and one that seems to be on the rise. Whether it is ‘pension liberalisation’ schemes (which provide access to your pension fund earlier than age 55), exotic investment schemes (like overseas property schemes or rainforest investments) or ill thought through tax evasion schemes, there is no end to the strategies employed by those looking to get their hands on your pension.
Chalk and cheese
All of this is a world away from what a properly qualified and authorised independent financial adviser would offer. There are many highly qualified, experienced individuals and firms that are authorised by the Financial Conduct Authority (FCA) and have a regulatory and moral duty to provide what is in the best interest of their clients at all times. These firms take time to get to know their clients, assess their needs and recommend only the most suitable of pension options and only ever work for a fee – never for commission.
Compare this to the cowboys. They are almost never regulated by the FCA, typically offer unauthorised investments (which have not been approved by the regulator) and usually work to earn high commissions on everything they sell. Frankly, their job is to sell you their dodgy investments, never to advise on what’s actually best for you.
A proper pension review
The sad truth is that stories of pension rip offs and dodgy pension reviews may put some people off having a proper pension review. Many reputable, authorised, independent firms do offer such reviews and they are often much needed.
Many people have old pensions that are sitting in high charging, under performing policies that could be moved to a much better, newer pension that could provide them with much more income in retirement.
A proper pension review is a complex process involving really understanding the client’s requirements, doing a detailed assessment of their pension policies and understanding the level of investment risk they are willing and able to take. Research then needs to be carried out to find the very best provider and come up with a suitable investment strategy.
Done right, this can be a real benefit to many people – but the key is to get it done right.
How to tell the charlatans from the good guys
Many people are rightly sceptical and cautious when it comes to their money and wary about who to trust. So how can you tell the charlatans from the good guys?
Authorisation – only use a company or individual that is authorised and regulated by the FCA. You can check if a firm is authorised on the FCA register. All financial advisers should also be able to show you their ‘Statement of Professional Standing’ demonstrating they have the qualifications and ethical standards needed to offer regulated advice.
Independence – it is usually best to use a company that offers ‘independent’ advice as they can find the very best pension for you from the whole market. Always ask if the advice is ‘independent’ or ‘restricted’.
Qualifications – ask the person doing your pension review what qualifications they hold and check them out. Ideally, try to find a ‘Chartered Financial Planner’ who have the highest level of professional qualification available.
Testimonials – always ask for testimonials and reviews of the firm or even ask to speak with bone fide clients of the company. You can often find reviews on listing sites like VouchedFor and Unbiased.
Don’t be fooled by marketing hype – glossy brochures, a swanky office or a sharp suite may look nice but they could be just cover for a dodgy investment pitch. Try to see though the hype and think about the reality.
Watch out for the ‘hard sell’ – if anyone tried to give you the ‘hard sell’, this should start alarm bells. No reputable adviser will ever pressure you into signing anything.
Read the small print – always read the documentation you are given and check things before you sign them.
Take your time – never get rushed into making a decision about your pension. It’s taken most of your life to accumulate so a few days to think about it never hurts. Anyone who pressures you into a quick decision is worth walking away from
Get a second opinion – ask your spouse, friends or family if what you are being advised to do sounds sensible to them before you go ahead.
Be realistic – always ask yourself whether what is being offered sounds feasible. If someone comes along offering to double your money overnight or to guarantee you 20% returns a year, it’s almost certainly not for you.
Where to get more information
There are many organisations that have been set up to provide help and information to people looking to get help with their pensions that are well worth contacting if you want more information or help with your pension:
The Pensions Advisory Service – provides free, independent information and guidance on pension matters.
Pension Wise – a free and impartial government service to provide you with information and guidance about your pensions.
Money Advice Service – a government service offering free and impartial money advice
Financial Conduct Authority – regulates the financial services industry in the UK and provides information on protection against scams and unauthorised firms.
Unbiased – a great place to find authorised independent financial advisers.
VouchedFor – another great place to find authorised independent financial advisers.
Action Fraud – provide a central point of contact for information about fraud and financially motivated internet crime.
It is crucial that everyone plans for their retirement and pensions are usually central to this. Pensions are a great way to save for retirement with tax advantages. Properly managed and invested, a pension can provide you with the retirement you always wanted but there are unscrupulous people out there who are keen to get hold of your money.
Our advice is to remain vigilant, remain sceptical and ask, ask and ask again before entrusting someone with your money. Follow all of our tips to ensure you only deal with reputable, qualified, authorised and ethical independent advisers and you won’t go far wrong.
Finally, it worth restating one of the oldest adages there is – if it sounds too good to be true, it probably is. When it comes to your pension, if someone if promising you the Earth, it’s probably worth walking away and finding a proper adviser.