With advances in medical treatments increasing life expectancy, uncertainty in economic markets and “jobs for life” in decline, it has never been more important to plan for your retirement. Recent changes to the state pension scheme have underlined that individuals need to take independent measures for a secure retirement. However, the Government warned last year that nearly 12 million people are not saving enough for their retirement.
A raft of pension changes have recently been introduced with this in mind, including auto-enrolment of workers into workplace pension schemes to encourage people to save. Also, the Government launched the new “pension freedoms” to allow individuals greater flexibility in taking their pensions.
Since April 2015, anybody over the age of 55 has been able to take “money purchase” pension benefits in cash (with the first 25% being tax free) and/or reinvest the cash wherever they like. (The new rules do not apply to “defined benefit”, often “final salary”, benefits. But defined benefit pension scheme members may be able to take advantage of the rules indirectly by transferring out benefits to money purchase arrangements.)
There are, obviously, advantages to this for those over 55. However, this newfound freedom is also attractive to pensions fraudsters, as it creates new ways for them to help part people from their hard won savings.
How then can investors protect themselves from fraudsters, and what remedies are available when an investment goes wrong?
PROCEED WITH CAUTION
Before you withdraw and reinvest your savings, you should take the following steps:
- Get advice: speak to your accountant or lawyer to talk through the implications of what you are considering. For instance, have you been warned about the tax consequences of withdrawing some or all of your money? Look at online resources such as the Pensions Advisory Service Website.
- Ask questions: what is the investment in? How is it structured? How many parties are there involved, and how will they be accountable to you? What insurance is in place? What other options have you been offered?
- Background checks: who are these brokers/advisers? Are they registered with the FCA? Do your own research (or get an independent third party to do it): don’t take the advisers’ word for it.
- Liabilities: what are the brokers’/pensions administrators’ liabilities? If they are limited, how will this affect you? Read the disclaimers and limitation clauses carefully and negotiate where possible.
- Educate yourself: read up on pensions scams, for example on the Pensions Regulatorwebsite. Modern scams are very sophisticated and credible, often aimed at high net worth, educated individuals. We are aware of scams involving investments in fine wine, art, and gold mines.
- Small print: wat will the adviser/broker charge? Is it a one off or annual fee? Do they get commission for introducing you, and if so, how much? Will any other party make a charge (eg the pensions administrator)?
DAMAGE LIMITATION AND REDRESS
If things do go wrong, there are several ways in which those who lose their investments can seek to minimise their loss:
- Contractual remedies: what does the contract say? Who is bound by it, and what are the limits on their liabilities? Do they have any money with which to meet any claims?
- Insurance: is there insurance in place? If so, what for, and how much does it cover? Are there exclusions relating to fraud/deceit/dishonesty?
- Get the regulator involved: The Financial Ombudsman may award up to £150,000 for breach of the FCA Handbook – although this will only help where there is still money to be recovered from the advisers concerned.
- Assign the claim from the administrator/liquidator. here the individual/business is insolvent, it may be worth asking the administrator/liquidator whether they will assign the claim to you to bring.
- Regulatory redress. The Financial Services Compensation Scheme is the fund of last resort for investors who are not able to recover their money elsewhere. It is capped at £50,000, relates only to FCA authorised firms, and requires you to give up all other claims in relation to the investment. You also require strong evidence and good presentation skills to win your case.
Even sensible, cautious investors who have followed some or all of the advice above may find themselves at the mercy of the incompetent, negligent or dishonest. We are currently acting for a number of individuals who invested in the same scheme, most of whom lost the majority of their savings as a result. One individual lost just short of £2 million. A typical story is set out below.
- Mr Investor was a property manager for a large company. He had a modest annual income and was five years off retiring.
- His employment was transferred to another large company and as part of the TUPE transfer he attended a pension planning meeting with Model Investments Ltd (MIL).
- MIL was registered with the FCA. Mr Investor took comfort from this fact, as well as the fact that they had been introduced by his employer.
- Mr Investor clearly set out to MIL that he wanted to retire in the near future, and that he had limited appetite for risk.
- Mr Plausible offered Mr Investor a “totally secure”, “gold plated” investment in a resort development in Portugal, offering an 8% return. He did not offer any other options or alternatives.
- Mr Investor invested two-thirds of his pension in the resort, around £40K, via a SIPP.
The fall out
For the first two years, Mr Investor received interest payments, and reassurances that the resort was on schedule for a completion date which got later every time. After that time, Mr Plausible refused to return calls or correspond with Mr Investor.
- Mr Investor was also upset by the level of annual administration fees charged by the SIPP, which he was liable to pay even when it became clear that the investment had failed.
- Ten years after investing, Mr Investor was left with nothing. Mr Plausible had been made bankrupt; MIL was in administration; there was no run off insurance in place. The resort had been built, but the Portuguese banks were owed such vast sums that no other creditor was likely to get a look in.
The Financial Services Compensation Scheme
- Mr Investor sought our advice. We applied to the FSCS for redress on his behalf.
- The FSCS agreed that Mr Investor was eligible for compensation.
- They awarded him £48,000.