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Pension fund scams: is this just the beginning?

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Gavin Cunningham - Forensic Accounting Partner Menzies LLP

Gavin Cunningham – Forensic Accounting Specialist

Pension freedoms were first announced in April 2015, and since then investors have decided on reinvesting, in some cases all of their pension funds. These investors still might not even know that they may have fallen victim to fraudsters. In some instances, their money might have disappeared at the time of the initial investment. 

The impact of this fraud has not yet been determined and could be even greater than the Financial Conduct Authority (FCA) could imagine, especially as the amount of investors that withdraw lump sums aged 65 or over has reached record levels, according to recent research. These scammers are opportunists and deregulation of pension fund investments has led to opportunities for fraudulent schemes to take effect. The sole purpose of these schemes being to draw off funds that investors might have already extracted from secure and safe schemes 

The scams are unnoticed pending the point of retirement 

The scale of this fraud is still unknown due to the intrinsic message within these schemes being that they are long-term investments that mature many years later and till then are unavailable. The fraudsters have developed the skill of shrugging off investors and preserving the scam by revealing information about how their investment funds are performing, issuing annual statements and giving the value of what a pension product would be worth at the point of retirement. It is becoming likely that a lot of fraudulent schemes are still ongoing and won’t be exposed for years, meaning those affected will have no idea until the point of their retirement. 

Fraudsters are being uncovered 

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Each year a number of these schemes are being prosecuted or investigated by the FCA or the Serious Fraud Officer. These scams are often tied into a self-invested person pension scheme (SIPP) and are unlikely to have the required regulatory approvals – something that could be noticed by some simple due diligence checks.

Procedures to regain stolen funds 

Chasing after stolen funds is always a costly, difficult and time-consuming task. Instead of facing that prospect, advisers and individuals should take precautions. Right from the off, investors should be suspicious of unexpected calls or emails about an amazing opportunities to reinvest their initial position, bringing them cash lump sums and stronger returns. Moreover, they should question whether risking a secure pension arrangement on the promise of riches is too good to be true compared to normal market investment returns. Performing internet research to check the identity of the provider and the legitimacy of reviews or published information can go a long way. The FCA Register will quickly indicate whether a claim made, about a firm being authorised to give investment advice, is true or not and whether any disciplinary action has been taken against them.  Investors should seek the advice of an authorised investment and regulated independent pensions adviser.

Fraudulent schemes are often shown as being supported by a range of respectable-looking professional firms, acting as advisers. But, on closer examination these firms might share the same named directors or common addresses, suggesting they are not independent of each other.  

Investors and their advisers should also be aware some schemes deliberately aim to tweak their social or environmental conscience. Recently, the trend has been for fraudsters to develop schemes that offer some environmental or community-focused benefit by investing in renewable energy sources, sustainable timber projects or eco-friendly housing in developing economies. If the investment involves a start-up business seeking funds for a precise long-term project and is in an exotic-sounding location, people should be even more cautious and carry out proper research on the scheme.

The Importance of advisers 

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Advisers should apply a rational degree of professional scepticism as they cannot afford to become complacent. If pension investment schemes seem too idyllic or promise to save the planet then alarm bells should be ringing. The full extent of this form of pension-related investment fraud hasn’t yet been discovered and even so some investors have already lost their money, advisers can still be pivotal in stopping others from following in their footsteps. 

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Gavin Cunningham

Partner, Forensic Services

Gavin Cunningham heads up Menzies Forensic Accounting advisory team providing financial investigation services. He is also a Partner in the London office.