Business

Investors face 'exotic' pension scams

Man on call Image copyright PA

Better-off people with some experience of investing are more likely to be caught out by "exotic" pension scams, the City watchdog has told MPs.

Concerns have been raised about the vulnerability of those approaching retirement under new pension rules.

Some 78 scams were successful in a month - the same number as before the changes came into effect.

People aged 55 and over are now able to withdraw cash from their pension pot rather than buying an annuity.

The Financial Conduct Authority has warned that con-artists have been keen to take advantage of the change.

'Confidence'

Chris Woolard, of the FCA, told the Commons Work and Pensions Select Committee that 10,000 people had filled in an online form outlining details of scam attempts since the new rules came into effect in April.

Although the number of scams had not risen immediately following the change in rules, of those that had been successful, the average amount lost was between £18,000 and £20,000 per investor.

Mr Woolard argued that criminals who had been concentrating on draining their victims bank accounts might now decide to transform themselves into fake pension providers.

The most likely victims were better-off pensioners with some experience of investing.

"They might have the confidence to invest in something that sounds exotic," he said.

Harriet Baldwin, Economic Secretary to the Treasury, told the committee that scams and their operators should be "caught, locked up and shut down".


Pension changes 2015

  • People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
  • Tax changes make it easier to pass pension savings on to descendants
  • Many people with Defined Benefits (DB) schemes will be allowed to transfer to DC plans
  • All retirees will have access to free guidance from the government's Pension Wise service
  • Existing annuity holders unaffected for the time being

Charges

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Figures from the FCA, released at the same time as the hearing, showed that 120,688 people took took some kind of cash withdrawal from their pension in the first three months under the new rules.

Some 71,455 people have drawn some income from their pension while the rest remained invested.

Over the same three months, the number of annuities sold totalled 12,418 - a fall from 89,896 in the same period in 2013.

Some pension providers have been criticised for charging customers who wished to switch their pot to access funds.

The FCA data show that 84% of consumers eligible to access their pension savings are not charged on exit.

Of the remainder, 358,000 (about 9%) face a charge of 0% to 2%, another 165,000 (4%) face a charge of 2% to 5%, while about round 147,000 (about 3% to 4%) face a charge greater than 5%.

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