In 2018 the Financial Conduct Authority (FCA) estimates that nearly £15m was lost in total to pension scammers, with the average person losing £82,000.
What makes the figures even more alarming is that over one-third of pension savers admitted to the FCA that they would be vulnerable to popular methods used by scammers (e.g. discussing their pension during a “cold call”).
Many people are particularly vulnerable to claims by fraudsters that they can help individuals access their pension money early, despite the rules which restrict you from doing this before the age of 55 (except in very rare, mitigating circumstances).
Given that your pension could be your most significant investment – perhaps representing a lifetime of savings – it is absolutely crucial to make sure you protect yourself, as much as possible, from those with sinister motives.
In this short guide, we follow on from our previous article by sharing more tips on how to spot warning signs of a pension scam, and how to shield your pension investments. Please note that this content is for information purposes only, and should not be taken as financial advice.
To receive tailored financial advice into your own financial goals and affairs, we recommend that you consult an experienced independent financial adviser.
#1 Qualified advisers
If someone claims to be a financial adviser who can help you with your pension, then we encourage you not to be shy about asking them for proof of their qualifications.
In the UK, a financial adviser needs a Statement of Professional Standing (SPS Certificate) to prove that they are registered with the FCA and that their qualifications are real.
True financial advisers need to hold an appropriate RQF Level 4 qualification to advise clients. Two of the most common qualifications come from the CII and the LIBF, although an adviser doesn’t need to have both to practice.
The main thing you are looking for is the CII Level 4 Diploma in Regulated Financial Planning.
When you look at the hoops that need to be jumped through for someone to call themselves a financial adviser or planner, it shows how dangerous cold calling and other “non-face-to-face” introductions can be when it comes to your pension. You’ll want to see hard evidence in front of you to show these qualifications, and that’s hard to do over the phone.
#2 Conflicts of interest
It’s important to be made aware of any potential conflicts of interest with your financial adviser, before making decisions about your pension.
This is particularly true when it comes to pension transfers, where dishonest advisers will sometimes try to convince you to move your pension so they can earn a commission – not because it is the best decision for you.
Right now the FCA is consulting on a proposed ban on contingent charging for pension transfers, for this very reason. Right now, however, people are still vulnerable. So it’s important to keep your eyes open if you are thinking about a pension transfer.
An honest financial adviser will make you fully aware of any potential conflicts of interests, well ahead of you deciding about what to do. However, if your adviser is not forthcoming when you ask about conflicts of interest then that’s usually a red flag.
#3 Regulated Investments
Pensions tend to consist of a series of investments intended to preserve and grow your wealth. Investments by their nature carry risk, so it’s unreasonable to expect the government to bail you out if they underperform. However, there are important protections and compensation available if you are advised incorrectly on a “regulated investment” (e.g. regulated by the FCA).
For this reason, most authentic financial advisers will only recommend regulated investments to their clients. This helps to ensure that the client’s wealth is as protected as possible. The only situation where you might be legitimately offered “unregulated investments” would be if you are a very experienced investor (e.g. a Sophisticated Investor).
A dishonest adviser, however, will often focus on pushing unregulated investments which are dressed up as attractive, “unmissable” opportunities which are only available for a very limited time window (i.e. to pressure you into parting with your money). Unregulated investments such as these might include forestry, overseas property or land banking. These things might sound good, but be careful to research the opportunities with your financial adviser before investing in something which might sound too good to be true (it often is).
Don’t allow yourself to be rushed into investment decisions either. An authentic financial adviser will take the time to explain things to you, to ensure you understand an investment before committing yourself to it. They will also give you plenty of time to make your mind up, rather than pressuring you into a decision.
There are many other important tips which we haven’t had time to expound here. For instance, we’d suggest checking whether an adviser genuinely asks you about your financial goals and needs, rather than simply launching into selling you a financial product.
It’s also important to see how a particular financial professional presents his/her costs to you. Legitimate financial advisers are legally required to disclose their fees and charging structure from the very first conversation with you. Fraudulent advisers, however, will often withhold this information or fail to disclose hidden fees to you.
The safest thing you can do to protect your pension is to educate yourself, but also to invest the time in building a strong, trusting relationship with an experienced financial adviser who understands your goals and who is qualified to help you. Yes, financial advice comes with its costs – but the peace of mind, financial protection and improved decision-making you can expect from it mean that it, typically, it more than pays for itself.
Interested in speaking to an adviser here at Cedar House about your pension plans? Get in touch today to arrange a free, no-commitment financial consultation.