Watch out for financial scams during the COVID-19 crisis

Sadly, this is a time when unscrupulous individuals will be looking to take advantage of consumer fears over their money.

Scams usually begin with unsolicited contact. This could be a phone call, text or email out of the blue. Be extremely wary of unsolicited contact.

If you’re approached by anyone offering a great deal – be it lower life insurance premiums, the chance to unlock the cash in your pension or a fantastic investment opportunity with guaranteed returns – be very cautious. The adage ‘if it sounds too good to be true, it probably is’ applies here.

If you’re contacted by anyone claiming to be from your provider or a third party (broker, financial adviser etc) and asking for your bank details always call your provider, broker or adviser to check their identity, using a telephone number on previous correspondence.

Cold callers pretend they’re calling from a genuine number. Even if your call records show what appears to be a genuine number, it could have been cloned by a scammer. Hang up on cold callers and don’t reply to emails and texts, even if you feel under pressure to do so.

Pension and investments

When markets fall in value and interest rates are around 1% or less, investors are much more vulnerable to falling victim to scammers offering unrealistically high rates of return. 

While this may feel like an unsettling time for many, the advice we’d give to ISA, pension or drawdown customers is not to panic. It’s wise to consider taking action, but when it comes to investments, decisions made in haste and under stress are rarely good ones. 

You can find more about your options during the Covid-19 crisis. Typical scams we've seen include: 

The offer of a ‘free’ pension review. 

The only way to get a proper review of your pension is to consult a regulated financial adviser. Help is also available from the government’s Pension Wise or the Pensions Advisory Services. Although unlike a financial adviser, these bodies can’t tell you what you should do or whether your pension is performing well or badly.

The chance to ‘unlock’ cash in your pension.

Unlocking your pension may seem tempting when you’re at your most financially vulnerable. However, you can’t normally access your pension before the age of 55.

If a scammer offers to ‘help’ you to access your pension by transferring money into a questionable pension scheme, they’ll usually expect a large slice of your hard-earned money in return and may even steal the whole lot. HMRC will also penalise you for accessing your pension early by levying unauthorised payment fees of up to 40% of the funds you withdraw.

You can only access your pension before 55 if you’re in poor health or have a ‘protected’ pension age of less than 55. Speak to your pension scheme or pension provider if this is the case rather than someone offering to ‘unlock’ your pension.

If you’re over 55, you’re free to take your whole defined contribution pension fund with up to a quarter tax-free. You don’t normally need anyone’s help to do this – speak to your pension scheme or provider who will explain what steps you need to take.

If your pension is a defined benefit pension (a specified pension payment or lump-sum on retirement) you should speak to your pension scheme or the trustees. They’ll explain whether you can take your pension and tax-free lump sum early or whether you’ll have to transfer to a defined contribution pension (based on how much is paid in) to do so. If it’s the latter, you’ll need to take regulated financial advice in most cases.

A fantastic investment opportunity with ‘guaranteed’ returns

One of the most common pitches is for scammers to propose a way to improve your investments’ performance. When interest rates are around 1% or less, a 6% or 8% ‘guaranteed’ return will sound great.

The ‘investment’ opportunity will typically be in something unusual such as property development, hotel rooms, storage units or car parking lots, both in the UK and abroad.

If you want investment advice and you’re not a confident investor, make an appointment with a regulated financial adviser.

Life insurance and income protection

There are firms that call consumers pretending to be their life insurance or income protection provider or adviser. These calls can be very convincing.

The caller will then usually offer the consumer ‘the same cover for a lower premium’. However, in reality, the cover will not be the same as the cover already in place. It may be unsuitable for the consumer's needs and may not even be available to the consumer.