In technical terms, a pension is a wrapper (or container) which holds money and investments.  For those in a British pension, the pension scheme is registered by HMRC and has to conform to specific UK pension rules.  In the case of an occupational pension, the scheme is also registered by the Pensions Regulator and has to conform to further UK pension rules.  There are offshore pension schemes – known as QROPS (Qualifying, Recognized, Overseas Pension Schemes) or ROPS (as above but without the “qualifying” bit).   These are schemes which have told HMRC they comply with UK pension rules.

In human terms, a pension is a mechanism by which a person saves up for retirement.  After working for a lifetime, there should be sufficient money put by to live on for the rest of that person’s life – in comfort and without worrying about running out of money.

Pensions are fairly complicated things and should only be managed, administered and advised by qualified, licensed professionals.

Things start to come unstuck when pensions are managed, administered and advised by unqualified, unlicensed salesmen who are only after commissions.  Pension schemes which allow the member or the member’s “adviser” to choose the investments (such as SIPPS or QROPS) can be open to abuse. 

The initially harmless pension wrapper can hold toxic, expensive, high-risk contents such as insurance bonds, structured notes and unregulated funds or mini-bonds.  These are typically chosen by unscrupulous salesmen posing as advisers, and serve only to pay fat commissions to the scammers.

A car can be used for taking Granny out for a trip to the park, but it can also be used as a getaway vehicle in a bank robbery. Equally, a pension wrapper can be used by an ethical, qualified, licensed adviser who sells proper advice – or it can be used by an unqualified, unlicensed a spiv who sells products which are chosen for the high commissions.

A pension scheme which is chosen and invested by the right type of professional and independent adviser, should be invested safely in diverse, liquid, low-risk assets.  This type of adviser will charge a fee for the advice, and will not earn hidden commissions from any of the products chosen. 

A pension scheme which is selected by a scammer will be invested in whatever pays the most commission. The scammer won’t care whether the victim is put at risk of losing the pension which he or she has spent a lifetime saving up for.

All pension scams are different – but similar.  If one or more of the following are present, these should be viewed as red flags;

• Free pension review
• Your existing pension arrangements are no good/under-funded/not giving good returns
• Your existing pension is “frozen”
• Moving to a new pension (e.g. occupational scheme, SIPPS, QROPS) will enable you to have control over your investments (which actually means that the scammer has control over your investments)
• The new pension will enable you to get “guaranteed” high returns with low risk and capital protection
• An insurance bond will give you tax efficiency and protect your investments
• You can transfer to an occupational scheme even though you don’t work for the sponsoring employer of the scheme

There are, of course, many other tell-tale signs.  The problem is that scammers are very convincing and plausible.

Depending how the pension has been invested, the first sign might be a valuation from the pension or bond provider.  This might show that the value has gone down.  The scammer will shrug this off with claims that there are set-up costs which affect the value.  Then there will be promises that any investment losses are “only paper losses” and when the investments mature the value will recover. 

There could be claims that there’s been a “market downturn” or that there has just been some back luck – and that the losses will be recovered when the money is reinvested.

Sometimes, a fund can get suspended or go into administration.  Occasionally, a victim will seek a second opinion from a qualified, licensed professional, and will be told that the pension has been invested negligently or fraudulently. 

Occasionally, the trustee will inform the victim that the funds have been totally lost or destroyed.  And sometimes the first a victim knows is when the case is reported in the press.