Few experiences are as distressing as financial fraud. According to one study, being a victim of fraud can lead to trauma manifesting in “Anger, rage and pain, hopelessness and depression, anxiety, fear, nightmares, shock, numbing, emotional despair, and devastation”. Sadly, fraud is still prevalent in the UK, with £609.8m stolen in the first half of 2022 through bank fraud and scams. One worrying trend is the rise of pension and investment fraud on social media such as Instagram, Facebook and Tiktok. In this article, we explore why such scams are on the rise, the common forms they can take and ideas to protect yourself.
In July 2022, two fraudsters were jailed for six years after conning more than 250 pension holders out of £20m. The court case revealed a sophisticated and well-planned operation, leading to a loss of between £10,000 and £200,000 per victim. This took place alongside an apparent rise in pension scams in the last year. Research by Lottie shows that in the first quarter of 2022 alone, there was a 75% rise in Google searches for “scam help”. Searches for “fraud support” had risen by 50% whilst searches for “investment scam” were also up by 22%. Action Fraud also received 107 pension fraud reports in the first three months of 2021, up by 45% in the same period of 2020.
Social media has been a significant source of these crimes, with younger people especially at risk. The Economic Crime Unit at Northamptonshire Police recently published research showing that 39% of investment fraud victims in the UK are aged 20 to 39 years old. In many cases, the victims saw an “influencer” on social media promoting a particular investment which turned out to be fraudulent. Sometimes, celebrities are pictured on scam adverts providing endorsements without their knowledge - as the case of Martin Lewis from MoneySavingExpert illustrates.
One reason for this could be that scammers have discovered that social media platforms are difficult to regulate.
The sheer volume of content getting uploaded to Facebook, Instagram and other platforms is immense and a clever scammer can work around filters with relative ease to set up a fraudulent advertising campaign (for a limited time). The Online Safety Bill currently going through parliament will hopefully make this more difficult - for instance, by requiring that influencers declare payment for promoting products. However, it is unlikely that legislation will stamp out the problem entirely.
It is impossible to list every investment and pension scam, but it can help to be aware of the popular ones in 2022. Pyramid schemes are still prominent and difficult to spot, often involving a “rep” (e.g. a friend or even a family member) who eventually asks for an up-front investment for a “starter pack” of products. The victim is then promised a commission for products sold and a larger return if they manage to recruit others to the scheme.
At some point, the “pool” of reps will dry up and the people at the top of the scheme walk away - together with your initial “investment”.
Pump and dump is another scam to watch out for. Here, a scammer persuades investors to buy a “low-priced” stock (perhaps not a legitimate business), causing it to rise in price. When the price goes high enough, the scammer then “dumps” their own shares before the price crashes. A third type of scam is the offshore scam, which entices investors to invest in an overseas investment “opportunity” in return for large profits (e.g. due to promises of low/no tax). When money is sent over by investors, it simply goes into the fraudsters’ accounts. This type of scam can be especially painful as the government may then require that you pay tax - or a penalty - for participating in tax avoidance. Finally, a fourth popular scam is pension fraud. Here, the members of an existing scheme may be persuaded to move their life savings into another, fake scheme which apparently offers high returns for low risk.
The money is then simply stolen or invested into strange, high-risk investments such as forestry, parking and storage units.
A first good rule of thumb to follow is never to be rushed into making an investment decision. Fraudsters will often apply pressure on potential victims (e.g. stating that the opportunity is time-limited) to try and get you to part with your money quickly. A legitimate financial planner, however, will always give you the time and information you need. A second idea is to consult the Financial Conduct Authority’s (FCA) register for companies authorised to provide investment opportunities and/or advice. The FCA also provide information about the different types of scams and how to avoid them. If a company is regulated, then you are covered by the Financial Ombudsman Service (FOS) if things go wrong.
Following good internet safety practices is also wise. Avoid clicking on links in suspicious emails, texts or social media messages (which could take you to a “front” website posing as a legitimate business).
Be careful about connecting to public WiFi networks; or, if you do, consider using a trusted virtual private network (VPN) service to encrypt your connection. Look out for the green “padlock” symbol (or “HTTPS” prefix) before the website address in your browser to help ensure that you are on a secure website. Regarding your pension, keep an ear out for “red flags” like promises of pension liberation (i.e. helping you access your pension before age 55), complex investment structures and high-pressure sales tactics - like sending a courier with documents to your door (hoping you will sign them).
To discuss your retirement options, get in touch with your Punter Southall Aspire adviser.