Pension scams come in many shapes and sizes. They often promise big money or moving your pension savings around. Financial scammers are getting smarter by the day and unfortunately, once they steal your money, it’s unlikely that you’ll see it again. While regulators are working hard to deter scammers, many people still lose substantial amounts of money to pension scams each year.
Top 5 Pension Scams To Avoid
A study by MetLife shows that retirees and seniors are losing about $2.6 billion every year. In the UK, scam victims lose an average of £91,000 per annum. The unfortunate fact is that consumers find it hard to identify pension scams and often rely on the government to use strong checks. A greater majority of these people usually miss the scam warning signs.
Unless consumers get smarter at protecting their retirement savings, it’s likely that pensions will remain an attractive target for scammers. Here are the top five ways to spot pension scammers before they swindle your retirement savings.
- Guaranteed High Returns
A promise of guaranteed returns is one of the most obvious signs that scammers use to lure unsuspecting consumers. They love to use the magic number of 8 – 9% growth per annum. While we will not dispute that there is a possibility for your money to increase by that amount, in the real world it is difficult to promise a guaranteed return in the short-term. Pension fraudsters normally promise guaranteed returns to get your attention.
One of the best approaches to protect yourself from this scam is to trust your conscience. If it seems too good to be true, most of the time, it is. If a company promises that it can offer a guaranteed return, alarm bells should ring in your mind.
Look at it this way: most investments that offer high returns usually have a higher risk. You should understand that high returns often come with higher risk. There is nothing wrong with accepting a higher risk for the possibility of receiving a higher return on investments. However, it’s a scam when a scheme promises you high returns without mentioning that there is a possibility you will lose some or all of that money. Don’t fall prey to pension scams like this one.
- Cold Calls
Cold calling scams happen when someone contacts you with unsolicited offers to move your pension money into another investment. Going by research, cold calling scams are widespread. The number of automated calling scams is also increasing.
In most cases, the scammer will say anything just for the sake of getting your attention. Nowadays, it is easy for scammers to find your phone and personal details, and then pose as a legitimate company.
Even though it is illegal to sell personal information, some fraudsters buy such information from business insiders. In most cases, they retrieve the information for free from places such as social media. For instance, a fraudster can check through your LinkedIn profile to find critical information, or even smarter, contact individuals in certain organizations that have problems with their pension schemes.
Please note that cold calling does not happen just over the phone. They can come in a variety of ways, including post, email, text message, or even in-person.
- Speculative Overseas Investments
The third sign you should be wary of is an offer to invest in unregulated offshore investments. A practical example is where a scammer offers you a last-minute opportunity to invest your retirement money in a prestigious property with impressive growth opportunities. However, what you may not know is that the offers may be tied up in long-term property, which may take years to mature. In such cases, early redemption usually results in punitive penalties. The issue with property is that it is illiquid. A pension needs to be a liquid investment to make it easy to transfer funds when the pensioner dies or reaches retirement age.
In short, be careful about anyone who offers you an opportunity to invest in overseas or unusual investments. They are often less regulated and offer low-to-no protection. So be wary of firms that promise to have regulatory approval when they don’t. If you spot statements such as ‘firm X has partnered with an authorized firm’, it usually means that company X is unregulated. If it goes under, you will lose everything since there is no protection.
Besides this, watch out for potential pension scams presented by an advisory firm that claims ‘no advice was given’ irrespective of whether or not the firm is regulated. If things go south, the firm will defend itself that it did not give advice, but let the investors make their own choices.
- Pressured Investments
Urgency is another common tactic that scammers use to cheat you into releasing your retirement funds. By coercing unsuspecting customers into making fast decisions, the scammer forces them to release money before they have time to think through the investment.
These fraudsters don’t give you time to study the terms and conditions. You should never invest your money under pressure. The potential of making regrettable moves is high, the worst being losing some or all your savings to pension scams.
Sometimes, the fraudster may not even coerce you directly, but they can lure you with limited time opportunities. Pay attention to investments that come with limited time offers. Some scammers may simplify the transaction for you by sending a courier to your home or place of work with documents for you to sign.
- Annuity Scam
An annuity is an investment product you can purchase with your pension to provide a monthly income for the rest of your life. Fraudsters usually target people who are ready to buy an annuity. These scammers will sell you the annuity at an inflated cost even if it doesn’t suit your financial circumstances.
Often, older savers are more vulnerable because some of them have poor health. Some fraudsters may offer a sign-up bonus, cash incentives, or limited-time offers to lure you into signing the forms.
Protect your hard-earned retirement savings
If you suspect that the person who approaches you for a pension investment is a fraudster, consider cutting off the communication. If you have already agreed to an offer but have second thoughts, contact your pension provider and ask them to provide guidance. Your provider can prevent pending transfers.
Retirement funds usually hold a significant amount of money. It is, therefore, vital to double-check all of your investment transactions. Working with a good attorney or financial advisor will not only alert you about newer pension scams but also protect your interest.
Pension scams can ruin your retirement. You’ve worked hard and probably don’t want to work your entire life. To see if you’re on track for retirement, check out or free tool: Retirement Calculator