Worried about the £120m Pension Scam?


The Serious Fraud Squad issued a warning last week relating to people who have invested their pension money into self-storage units. It now appears that money invested in such schemes is likely to have been lost, and an investigation has been launched. We’re not talking about physically storing money in these units (also known as ‘storage pods’), we’re talking about bogus firms luring people into investing into something that often just doesn’t exist, usually with the promise of ‘guaranteed’ double-digit returns.

What’s the problem with investing in self-storage units?

There’s nothing wrong with the idea in principle and no doubt some units make great investments. But what’s happened in this case is that people have been persuaded to invest their pension money into specific schemes, having been told they will see an 8% – 12% pa return on their investment. And the investment is a scam. It is now apparent that at least 1,000 investors may have lost their money due to the bogus firms who are promoting the investment. What’s more, the Serious Fraud Squad thinks the real number could be much higher, warning that more than £120m may have been lost through self-storage investment schemes.

On top of that, many people are being persuaded to transfer their defined benefit (also called final salary) workplace pensions so the transfer value can be invested. This is contentious because for many people their defined benefit pensions offer a guaranteed income and they would not be advised to move their money somewhere else. However, because the transfer values of these types of scheme are so high at the moment, it is easy to be persuaded to take the money and invest it somewhere else. Unscrupulous firms are not helping pension savers understand the full picture and exactly what they could be losing.

How does a self-storage unit scheme work?

Known as a “pension liberation” scam, people are persuaded to either cash in their pension pots or transfer their money into certain investments. In this case, someone might receive a cold call and then be sent a brochure offering the opportunity to buy individual self-storage units on a long-term lease. The unit would then be sublet to a management company. The cost of these units could be anywhere between £3,750 and £30,000. The problem arises when investors realise they cannot get their money back out of the scheme and the promised returns aren’t materialising. In the meantime, the original company that promoted the scheme has long gone.

It’s not always self-storage investments to watch out for. Usually, these scams tend to be fairly exotic, e.g. investing in foreign hotels, development land, wine or tropical plantations. One of the ‘selling points’ for luring people to invest in self-storage units, could be the fact that such sites are typically based on industrial parks, which is a lot closer to home and gives the impression of being a more secure investment. However, this is far from the truth.

Since the 2015 “pension freedoms”, which now allows over-55s the chance to use their pensions before they retire, pension scams have been on the rise. You may even have noticed more warnings in the literature you receive from your own pension provider.

How is this being dealt with by the authorities?

The Pensions Ombudsman investigated a case where a person transferred his whole NHS pension into a self-storage unit pension scheme. There were two bogus companies involved in a joint venture where one paid commissions of up to 46% to the other. Both firms were eventually wound up by the High Court after an investigation was conducted by the Company Investigations of the Insolvency Service. It is highly unlikely that this investor will ever see his money again which is, unfortunately, a typical story. Read more about this…

The Serious Fraud Squad has now launched a full investigation into self-storage unit investment schemes. If you have invested in this type of pension scheme between 2011 and 2017, the Serious Fraud Squad has a questionnaire on their website for you to complete.

How do you protect yourself?

Firstly, if you have been approached by any company that you don’t know (no matter how reputable they look) with “an offer you can’t refuse”, think twice. If it looks too good to be true, it probably is. If they are putting pressure on you to commit, if there’s a limited window of opportunity before the offer closes, or if they offer to expedite matters by sending forms by courier to your home – these are all warning signs.

Secondly, do your homework. Is the firm you are dealing with authorised and regulated by the Financial Conduct Authority? Their literature will say if they are, and show their individual reference number. Look them up on the Financial Conduct Authority register. Check how long they’ve been in operation, who the principal people are and if they have had disciplinary issues. There is no reason to be dealing with any firm that is not FCA registered.

Lastly, have everything in writing. All reputable financial planners will give you a written advice report or letter before you sign anything, accompanied by a prospectus, factsheet or booklet about the investment being recommended. The same goes for recommending that you move your defined benefit pension, or take benefits out of your pension – everything should be clearly set out in writing, with a full analysis of the pros and cons. Don’t commit to anything until you see that. And check the literature of the investment shows that the investment is also regulated by the Financial Conduct Authority. Almost all ‘collective’ investments are. Not only is it a comfort that the investment must stick to the rules and regulations, but it also means you are protected by the Financial Services Compensation Scheme if it all goes wrong.

If you have a defined benefit pension scheme Download our pension guide to check the different options and what you need to consider before you transfer your pension plan.

For a more general guide to retirement planning, please visit our planning to retire page.

If you are worried about the pension scam or any other aspect of this article, please get in touch to speak to one of our financial planners for advice. We will be more than happy to help you make the most of your pension plan and your retirement.