Pensions: 5 scams & bad advice that can seriously damage your retirement


We’ve been shocked by some of the pension scams and examples of bad advice we have seen so far this year.

For most people a pension, whether it is a workplace scheme, a Personal Pension or indeed a SIPP (Self Invested Personal Pension) will provide part of their income in retirement. However, we are seeing more and more examples of scams and bad advice that could seriously damage your wealth in retirement.

We’ve put together a quick checklist of the worst five we have seen and how to avoid them.

Our advisers can review the advice you have been givenThe Investment Sense team of Independent Financial Advisers in Nottingham

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1. Pension unlocking

Unless you are very seriously ill or in a specific occupation, for example a professional sportsman, the earliest you can access your pension is age 55. However, there are companies promising you access to your pension before then under schemes known as ‘pension unlocking’, ‘pension reciprocation’ or ‘pension liberation’.

Some schemes have already been declared illegal by the High Court, whilst HMRC are very much on the case and have already made it clear they will pursue people who access their pension before the age of 55, for authorised payment charges and tax penalties, which could be as high as 70%.

Remember too, HMRC can also pursue you for the tax penalties personally.

As tempting as it might be to access your pension early, especially in these tough economic times, its sole purpose is to provide you with an income in retirement.

In short, if a company suggests they can ‘unlock’ your pension before you are age 55, we’d suggest you run swiftly in the opposite direction. HMRC are pursuing people who access their pensions early and you will be charged a hefty fee or commission to do something that probably isn’t allowed anyway!

2. Risky and unregulated investments

So far this year we have heard of clients, being offered a whole range of weird and wonderful investment schemes, including car parks, hotel rooms, burial plots, social housing in Brazil, bamboo, listed buildings in Germany and land in far flung places.

Many of these ‘investment opportunities’ are often advertised with the promise of high, guaranteed, returns and come in two distinct forms.

The first are called Unregulated Collective Investment Schemes or UCIS for short. These types of investment, which often include property or land, can only be marketed by FSA (Financial Services Authority) regulated advisers to suitable investors. Furthermore the suitability of an investor needs to be established before the investment is offered to them.

The second type are also unregulated, but marketed by companies who are not FSA regulated.

In the case of a UCIS investment the client may be able to make a complaint against their regulated adviser if things go wrong. There are also institutions to call upon, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme if the regulated adviser, who sold you the investment, is no longer in business.

However, in the second scenario, where the investment was bought from an unregulated adviser, there is no protection from anyone whatsoever.

Before buying an unregulated investment we would suggest you tread very cautiously and take advice, preferably from someone who has no vested interest in you investing.

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Firstly protect yourself by never, ever, buying an investment with an unregulated ‘adviser’, always make sure you take advice from someone regulated by the FSA . If you buy an investment from an unregulated adviser and it goes wrong, as these frequently have in the past, who can you complain to?

The answer is simple, no one.

Secondly, if an investment is promising double digit returns, and maybe a guarantee in some shape or form then look closer. How can they guarantee such good returns when no one else can? Who is providing the guarantee? What happens if the guarantee fails?

Finally, the old saying sums it up well, “If it’s too good to be true, then it probably is.”

3. Final Salary Schemes

We have seen an increase this year in people being recommended to transfer their pension out of a Final Salary or Defined Benefit pension scheme into an alternative form of pension, often a SIPP, and then invested in the alternative investments we mentioned above.

This really is very simple; it is hardly ever in your best interests to transfer away from a Final Salary pension scheme. The benefits are guaranteed, generally index linked and very hard to beat if you transfer to any other sort of pension.

If an adviser, regulated or otherwise, recommends you transfer benefits from a Final Salary pension we would strongly recommend you take a second opinion; it is rarely, if ever, in your best interests to take such a step and we have been frankly shocked by some of the recommendations we have seen this year.

4. Guaranteed Annuity Rates

We have also seen a small number of people been advised to transfer out of pensions which had valuable Guaranteed Annuity Rates or GARs.

Most GARs are higher than current Annuity rates, which had dropped dramatically over the past year or so, and are therefore generally extremely valuable.

One example saw a recommendation to transfer from an existing pension where the GAR was nearly 10%, that’s not far off double current Annuity rates.

Again, if someone recommends you transfer away from a plan with guarantees seek a second opinion, it is often not in your best interest to do so.

5. Commission kick backs

Finally, we have seen a number of examples where incentives, in the form of commission kick-backs, have been offered if a transfer to a SIPP is made and certain investments are taken out.

HMRC are very clear on this subject, if you personally benefit from your pension before the age of 55, you could be subject to a tax charge of 55% under the unauthorised payment rules.

Remember, HMRC have the right to chase your SIPP and you personally for these charges. Additionly, further tax charges could also be made on the SIPP provider, which will undoubtedly be passed on to you.

Commission kick-backs are something to avoid, they are only coming from one place, your pension, and are likely to be deemed an unauthorised payment. HMRC will find it easy to track you down, possibly far easier than it will be for you to track down that plot of land, bamboo plantation or bio-fuel plant you invested in!

Next steps

If you are considering unlocking your pension, transferring a final salary scheme, giving up Guaranteed Annuity Rates, making a risky investment or taking a commission kick-back then stop, pause and reflect on whether you are doing the right thing.

Take a second opinion, find an FSA regulated Independent Financial Adviser and let them review the advice you are being given.

Yes, they will probably charge you a fee, but at least you know their advice will be independent and not based on selling you a product so they can earn a commission.

Of course our advisers are here to help if you would like a second opinion or have been affected by any of the things mentioned in this article please do not hesitate to call one of our IFAs today on 0115 933 8433, alternatively enquire online or email