Identifying a Pension Scam

New pension reforms were introduced on 6th April 2015 which will change the face of retirement income in the UK forever.

It allows citizens better control and flexibility to access their pension pot. But a lot of questions still hang in the air as people are not fully aware of the changes.

Fraudsters see this as a perfect opportunity and time, to strip the hard earned money off gullible retirees.

Pension Scams of multiple varieties are on the rise in the UK.

From an email that pops out of the blue, promising incredibly high returns from ‘creative’ investment options, to a phone call that lures you into believing that you can get access to your pension pot before the age of 55, there are many ways in which a pension shark may approach you.

The only way you can protect your life savings is by being aware and spotting a scam a mile away.

The Modus Operandi

Most pension fraudsters will try to entice you into transferring the funds in your pension pot in exchange for lucrative returns on bogus investments.

You may receive an email, a phone call or a conman may turn up at your doorstep.

The person will look like a legitimate representative of a pension company and will sound extremely convincing.

They may even have a very attractive website that may have the words, ‘Pension’ or ‘Wise’ in their name, to fool people into believing that they are a part of the government Pension Wise service.

You are more likely to be contacted by scammers if you are nearing retirement.

The Common Ones

Over the years, many retirees have been scammed off their hard earned money by scammers who keep coming up with innovative methods.

These are some of the common ones that you may be approached with:

  1. Free Pension Review: This is one of the most commonly used methods by fraudsters. You may be contacted by companies that claim to work on behalf of the government offering you free guidance on investing your pension funds. Typically, retirees are asked to move their funds into self-invested personal pensions (SIPP) with unregulated investment options like forestry, wineries, storage pods, cement factories in Nigeria, properties in overseas destinations like Costa Rica and rainforest harvesting.
  2. Pension Liberation Plan: The only way you can get access to your pension funds before the age of 55 is if you are batting ill health. Fraudsters who offer ‘Pension Loans’ or ‘Pension Liberation Schemes’ hide the fact that you may lose up to 70% of the liberated pension amount as taxes by the HMRC. This will be in addition to up to 30% charges by the fraudsters themselves leaving you with virtually nothing.
  3. Common Names: These are some of the terms that should immediately draw a red flag. One-Off Investment Schemes, Legal Loopholes, Government Endorsements, Overseas Investments and Creative Investments. The general thumb rule is to avoid any investment option that you receive via cold-calls.

Protect Yourself

It is important to know that the government will never contact you or encourage you to make investments in get-rich-quick schemes.

So, if you receive a cold-call from someone who claims to represent or work on behalf of the government and asks for details about your pension pot, do not reveal the information. The best you can do is hang up. Alternatively, you can ask them if you can call them back.

Most fraud companies do not want you to call them back and will refuse.

If they agree and provide you with a phone number, call the Financial Conduct Authority (FCA) on 0800 111 6768 to verify if the person or company calling you is legitimate.

The FCA register has details of all licensed pension providers. Call back the company or person on the number provided in the FCA register and not the one they provided you with.

Do not be rushed into making a decision no matter how lucrative the investment option seems or how urgent they make it appear to be.

Always seek the advice of an independent professional before you agree to transfer your pension pot to any SIPP. 

Where to Find the Best Paying Charity Accounts

If you are looking at charity savings accounts, you may not be too excited by the interest rates that they currently offer.

As a result, the hard-won funds of your charity may only be earning an inadequate amount of money… but it does not have to be that way!

While well-known banks and building societies do not tend to give the best rates on the market, there are other providers that you can choose from. As a trustee, you will need to be prepared to shop around to discover the best charity savings rates.

If you take the time to look, there are a number of higher-paying accounts that are available to charities, with the majority being granted by providers that are smaller and lesser-known.

The best rates on charity deposit accounts will be given when your organisation:

  • Can commit to not having near-term or immediate access to its funds. Fixed rate and notice accounts offer higher rates than accounts allowing easy access.
  • Consider Business Deposit Accounts as an alternative
  • Has a sizeable amount of money to save. For example, charities with £50K to invest will presumably secure better interest rates than those with more modest amounts to invest.

See:  The Basics of Business Deposit Accounts

How Do Faster Payments Work?

Faster payments do exactly what they say on the cover: they are a way to perform payments faster. But how truly fast are they? And how do you make one from your bank account?

Making use of faster payments can determine the difference between paying or missing that red bill, or getting your cash-strapped child at university the required money to pay their rent before they dive into their overdraft yet again. Faster payments mean that the excruciating waiting period that is added to payment transfers is lessened– giving you and those you are paying extra peace of mind.

How do faster payments work?

The Faster Payments Service enables customers of certain banks or building societies to perform quicker electronic payments or transfers online or over the phone.

Funds can be accessed and transferred within a couple of hours instead of days while standing orders, on the other hand, can be set up in one day.

Banks and building societies that are operating the Faster Payments Service are able to perform processing of payments and transfers 24 hours a day, any day of the week which includes weekends and Bank Holidays.

Four things to check when making a faster payment

There are four things that you need to check before you can make a faster payment:

  1. Does the provider of your current account take part in the Faster Payments Service? Not all banks and building societies are participating in the said service. You can find out here if your current provider is a participant in the said scheme.
  2. Verify if there are any transaction or daily value limits on the amount of money that you can transfer using the Faster Payments Service. Your payment may be rejected if the amount exceeds the value limit your provider.
  3. If you are paying a bill, verify if the company that you are paying is accepting faster payments (you should be able to look for this information on the back of a utility bill for instance, or by contacting them).
  4. If you are making a payment to an individual, check if their bank or building society are accepting faster payments.

Bank Accounts: Things to Watch Out For

Banks and building societies are in business in order to make money from their products and services. Which means that there are things that you should look out for when it comes to choosing your bank account.

Monthly fee

A number of accounts require a monthly payment, usually in return for other benefits, which are usually offered as a package deal. At times, paying the fee could save you money if it involves a lower overdraft interest rate or other money-saving initiatives, but take note that free banking is still available widely, so do not pay for things that you do not actually need.

Interest

Interest rates that are similar to – or even better than – some savings accounts are currently available on current accounts. However, these will normally only apply to a portion of your account balance, and usually up to a set limit, so you may be required to maximise your returns by depositing money above this limit in a separate savings account.

You will also typically be required to pay in a minimum amount every month in order to qualify for the interest rate that was advertised.

Overdrafts

Basically, overdrafts, are a form of credit: they are a facility that permits you to overspend, so it should be avoided too as much as possible.

Make sure that you are able to understand the terms of your overdraft facility. There are two kinds of overdraft:

  • Arranged overdraft – the bank agrees to an amount by which you can go overdrawn.
  • Unarranged overdraft – you either go overdrawn or exceed your arranged overdraft without having an arranged overdraft.

The interest rate that is charged on your arranged overdraft will normally be less than an unarranged one. Rates for unarranged overdrafts are often around 25-30% per year.

Some accounts may also impose a fee every time that you are overdrawn. Other accounts waive interest rates altogether and only require an overdraft fee.

If you do not have an overdraft facility (which is the case for basic bank accounts), it is very important to ensure that you have enough money in the account to satisfy payments, as a fee may be charged if a payment cannot be made.

Cash withdrawals

Almost all bank accounts provide you with a cash card so that you can withdraw money from cash machines. Majority of transactions will be free of charge. However, if you use cash machines in places like amusement arcades, petrol stations, or nightclubs, a fee may likely be charged.

It is worth understanding what type of cash card you will receive and whether it is widely accepted.

Real also: Can You Still Receive a Decent Return on Your Savings?

The Basics of Peer to Peer Savings

Peer to peer savings is also known as P2P. Peer to peer lending or crowdfunding is a way to look for high rates of interest as a return for lending your savings to others. Here is a guide on what you need to know before you invest in peer to peer savings.

What is peer to peer savings?

Peer to peer savings is a loan based platform which converts your savings into a lending stream for possible borrowers.

This means that you can lend your money to others for a fixed return, in the similar way that a bank or building society offers loans.

This is how a peer to peer savings works:

  1. Add your savings to your selected P2P providers’ platform
  2. Lend your money to a borrower via the P2P provider
  3. The borrower repays your money back with interest over a fixed term – earning you a profit

You can decide on how long to lend your money for, with terms that are as long as 6 years or as short as 31 days.

However, be careful on how long you tie your money up for, as there are penalties that may be charged for withdrawing your funds early.

How much can you save?

There is no maximum amount to how much you can save so you can save as much as you like.

However, there is a minimum limit on the amount that you have to lend; usually around £10 or £25.

As P2P savings acts like a loan, there is a risk that you may not get your money back if the borrower cannot keep up with their repayments which is known as defaulting.

For this reason, you should always spread the risk by lending your savings to various borrowers.

Higher investments, such as £50,000, can become longer to distribute to borrowers which implies that you will need to wait longer in order to receive a return on all of your money.

Who can you lend your money to?

This depends on the provider that you select. The typical types of borrowers include:

  • An individual: this is somebody that is looking to borrow money, who may not have been able to receive credit through traditional methods, for example, through a bank
  • A start-up business: Every new enterprise which requires funds for development or  expansion in their business

Depending on the need for funds, you may have to wait for a few days or  a few weeks until you can lend your money out.

P2P providers will store your money in a holding bank until you can lend it out, with some providers offering a small amount of interest during this time.

Can anyone borrow your money?

No. Borrowers must pass a range of checks to qualify for P2P lending.

These checks are completed by the P2P provider, and these include:

  • A full credit check
  • An identity check
  • An affordability assessment

If the P2P provider you selected is registered with CIFAS, they will also execute an anti-fraud background check on each borrower. They will not perform this check if the provider is not registered with CIFAS.

Which borrower should you decide to lend to?

Individuals are characterised based on their credit history which also has an effect on the amount of interest that you can get in return for your money, broadly speaking:

Borrowers credit historyRisk to your moneyYour interest rate
ExcellentLowLow
PoorHighHigh

Start-up businesses are not classified by their credit profiles so you will have to research the company before you decide to lend to them.

Does it cost you anything?

Yes, most providers will require an annual servicing fee of about 1 percent. This is deducted from each repayment before it gets to you.

If you decide to withdraw your savings during a fixed term, you will be charged with a sale fee; this is normally around 0.25 percent. The sale fee includes the costs of looking for a new investor to put in the amount that you take out of the fixed term loan.

If you decide to withdraw your money at the end of an agreed term, you will not be charged.

Do you pay tax on P2P savings?

You pay for tax on P2P savings. However, your provider will not automatically subtract any tax from your interest, unlike building societies or banks.

You will have to declare any P2P savings interest that you earn by accomplishing a self-assessment form at the the tax year’s end.

Can you make use of your ISA allowance with P2P savings?

Yes, if you have an innovative finance ISA, you can save into a peer to peer investment with the use of your tax-free ISA allowance.

This means that the interest that you earn will be tax-free and that you will not be required to accomplish a self-assessment form for any ISA money you have used in P2P savings.

When will you get your interest?

You will get your interest usually at the end of the lending term that you have chosen. However, this depends on whether you lent your money on a rolling term basis or a fixed term:

  • Rolling term: A portion of your capital and interest, every month for a set term will be paid to you. This means that you can re-invest or withdraw your monthly capital repayments after each month if you want to.
  • Fixed term: You can lend your savings for a fixed period, for example, one year, and you get your capital back at the end. You can also decide to have any interest given to you on a monthly basis.

Where to invest in peer to peer savings?

It is only an online savings platform, and every provider has its own methods of operating.

You should analyse all of the P2P savings and investment providers to look for the one which will offer you the best return on your savings.

To start saving, you must register on the website of your chosen provider, add your savings, then from a list of borrowers, select who to lend your money to.

Will your peer to peer savings be protected?

There is usually no protection under the FSCS, which means that you would possibly lose your money if you save via a provider who fails.

Some P2P providers have their own schemes which will cover your savings if a borrower default on their payments.

These schemes include a definite amount of money to cover any default payments. If a huge amount of borrowers default at the same time, the scheme may not have adequate money to cover the entire loss to each investor, meaning that you could lose your money.

Make sure that you check the details of any scheme proposed by a provider before investing your money.

Is peer to peer savings regulated?

Yes. Since April 2014, peer to peer providers are regulated by the FCA, which means that every provider has to comply with the terms that are listed below:

  • Your money must be protected by providers that are meeting certain capital requirements
  • Be clear and transparent regarding the risk and who are to borrow your funds
  •  If their platform collapses, providers must have plans in place in order to collect your money

You can check if a peer to peer company is regulated by looking for their name on the FCA register. However, being regulated does not mean that they are covered by the FSCS.

Can You Still Receive a Decent Return on Your Savings?

It is harder than ever to earn money from your savings. However, you could get a better return if you extend your search for interest. Here are some of your options.

Where to begin

If you have savings, discover what interest rate you are receiving by contacting your bank or building society. Chances are, you could receive more.

Even the smallest increase in your interest rate can make a difference, especially if you already have a great amount of money saved up.

If you are just beginning to save, you should still scout around for the best rates possible.

Inflation-proof your savings

After tax, the rate of your savings must be greater than the rate of inflation, also known as the Consumer Prices Index (CPI), for your money to actually be earning.

The CPI is calculated by averaging the cost of consumer goods and services.

If the CPI rises, there will also be an increase in the price of consumer goods and services, so if your savings interest rate is lower, your money will depreciate in value.

What to look for

There are a lot of different kinds of savings accounts, and picking the right one can help you raise the interest you earn.

  • Instant access accounts: These normally pay the lowest interest rate, like 0.1 percent. However, you can withdraw and deposit money whenever you want. If you require to make a decent return, try to avoid these accounts.
  • Notice accounts: These accounts can offer a slightly higher interest rate than that of the instant access accounts. However,  you will be required to give a notice to perform a withdrawal, like 60 days, or face an interest charge.
  • Regular savings: These accounts can offer the largest interest rate out of any savings account, but there is typically a restriction on how much you can pay in every month. Some even limit you from withdrawing in the first 12 months.
  • Fixed term accounts and bonds: These accounts tie your money up for a fixed term, like one year. They do not offer rates that are much greater than notice accounts and limit the access to your money even more.
  • Cash ISAs: These accounts are tax-free versions of the savings accounts. However, you could earn up to £1,000 in interest before tax from any savings accounts every year, which makes these accounts less competitive.
  • High-interest current accounts: These accounts can offer larger interest rates than the savings accounts. However, they typically set a limit on how much you can earn interest on, for example, £2,500.

See also: Which Type of Bank Account Is Right For You?

Although interest rates are currently low, think about the access you want for your money. Usually, the more limiting the account is, the more you could receive in interest.

Try something that is new

There are a lot of ways that you can invest your savings, even if you do not want to tie your money up for five or six years.

All investments offer you the potential to receive more than a savings account. However, they also place your money at risk.

Here are some options and where to find more details

Peer to peer

  • Crowdfunding: You typically receive a high interest rate, and your money is loaned out to businesses and people and repaid over the term you choose.
  • Innovative Finance ISA (IFISA): This similar to crowdfunding. However, you can use your ISA allowance to make any interest you earn free from tax.

Trading

You can make use of a trading platform to perform the following types of trades:

  • Financial spread betting: You can bet on the value on a market price that is increasing or decreasing.
  • Contract for difference (CFD): You trade contracts across numerous markets.
  • Forex: You bet on the value of one currency rising or declining against another.
  • Share dealing: You trade shares in listed companies.
  • Binary options: You bet on a market price going up or down in a set time frame.

Portfolio investments

You could ask for help from a financial adviser to assist you in building a collection of investments in one portfolio. There are several kinds of collective investments:

  • Unit trusts
  • OEICs
  • Investment trusts

You may have to pay for an adviser to assist you in creating or managing these types of investment.