Pension advance scams are particularly prevalent in the USA. Variations on the theme are popular in other jurisdictions as well.
Someone calls you out of the blue — or you see an online ad — offering you a generous upfront lump sum ‘advance’ on your pension. What could go wrong? You’re getting older, but not old enough to access your pension. Or maybe you’re already getting your monthly pension allowance but need a large amount of cash right away. Be careful. Such calls may signal pension advance and release scams.
Some callers may claim that you can withdraw pension funds early. Others may tell you that you can borrow on it. Some will call it a cash advance or another positive-sounding euphemism. Some may even claim to represent a government agency. The one thing they probably won’t tell you is that it’s a loan. An unregulated high-interest loan. No matter what they may or may not tell you, however, it’s likely to be a scam.
For the record, you can withdraw your money from a pension plan before maturation only under stringent and unusual conditions. Those depend, of course, on local regulations. One typical exception is if you have been diagnosed with a terminal disease. In certain jurisdictions, you can withdraw cash from pensions but an extremely high tax will be levied on the amount. That’s in order to discourage you from doing so. If you withdraw your money, however, you will not be excused from paying the tax. In that case, be prepared to lose even more money than the amount you withdraw. As the U.S. Federal Trade Commission (FTC) warns, the bottom line is that ‘unlike other types of cash advances or loans, taking out a pension advance means signing over money you need to live on.’
How Early Pension Release and Pension Release Scams Work
The scam may begin with an unsolicited offer to provide you with a free pension review. The caller may say you can withdraw cash from your pension even though it has not yet matured. Or the scammer will offer you a lump sum payment in exchange for signing over your future pension payments. The scammer may inform you that he can help you out by transferring your funds in a different investment that will yield far more interest. As in any legitimate financial transaction, you’ll have to pay a service fee. But it will turn out to be a significant percentage. Some victims have paid scammers up to 30 percent.
There may be other surprises hidden in the small print as well. You may be charged for life insurance. You may be asked to accede to certain concessions or restrictions that, in fact, are illegal. Your spouse may unwittingly have to forgo survivor’s rights until the loan is fully repaid. The effective annual percentage rate (APR) will in all likelihood be enormous, even more than 100 percent, which, of course, means that you will lose money. A lot of money.
And then, don’t be surprised if your new account turns out to be located at a bank or investment company located on some underpopulated island mini-state that you may never have heard of and probably could never find on a map. Such countries are ideal locations for scammers to stash other people’s cash. That’s because their financial regulatory infrastructure is minimal. In addition, they’re so isolated that victims will feel discouraged about pursuing their cases.
Pension Release Can Be Outright Theft
There’s always the possibility that the scammer may just steal your funds outright and conveniently disappear. If he remains in contact, it’s probably because he feels he might be able to convince you to free up even more money down the road. In the meanwhile, he’ll inform you that your pension has now been invested in high-risk opportunities. Or in overseas property that cannot be unfrozen for the foreseeable future. Either way the message is the same: You won’t get your money back. In the U.S., the pension advance scam is the most typical. In the United Kingdom, pension scams have become more discernible with the COVID-19 pandemic. A survey conducted by a major insurance company found that 28 percent of British residents who reported being scammed since March 2000 said they were victims of pension scams. In addition, the country’s Pensions Regulator announced that it was investigating the loss of at least £54m in pension savings.
In 2020 the average loss for victims of pension scams in the UK stood at £82,000, which is equivalent to 22 years of deposits into pension funds. By 2021 that figure had jumped to £91,000.
If you think you’ve been the victim of an early pension advance or release scam, contact the fund recovery experts at MyChargeBack.