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Pension scams and how to spot them

Pension scams, or retirement scams, can be devastating. By targeting vulnerable older people and their families, scammers leave victims without the funds to provide for their retirement. According to figures published by the British newspaper The Times, more than £78m was lost by victims of investment and pension scams in 2020. For many older individuals, their retirement funds are their single largest asset and the high value may make them an attractive target for scammers.

Since 2019, the UK government has banned cold-calling concerning pensions. Companies that make unsolicited calls to people about their pensions face fines of up to £500,000. As such, any unsolicited cold call about your pension should be treated with caution. In May 2021, the government announced further plans to tackle pension scams on social media, using a "red flag"triggering system that will allow pension trustees or scheme managers to identify and block fraudulent transfers.

As the government increases its measures to prevent and block these transfers, gaining awareness about the types of pension scams in circulation may help you protect yourself and your assets.

What is a pension scam?

A pension scam aims to convince pension savers to transfer some or all of their retirement pot into the scammer's possession. This usually starts with unexpected contact from someone offering an investment opportunity or early access to their pension money. Even the most financially savvy saver can fall victim to pension scams, as scammers make enticing claims to persuade people to part with their retirement fund. Here are two pension scams frequently reported in the UK:

Fake pension investment scams

In one of the most common forms of pension scams, scammers target people aged 55 and over to offer them investment opportunities with high returns. The false investments offered are frequently overseas, where the intended victim will have less consumer protection, and "guarantee"a high rate of return in investments such as overseas property, hotels, energy bonds or storage units.

Scammers hope to convince pension savers to transfer some or all of their pension savings into these schemes, which often either don't exist or are high risk with low returns. For more information on investment scams and how to spot them, see our previous article: Staying wise to investment scams.

"Pension liberation"scams

Pension liberation scams offer intended victims "loopholes"or "pension loans"to gain early access to their pension savings before the age of 55, promising no charges for early access. The reality is that accessing your pension early is only allowed in very special circumstances, such as poor health.

This can lead to the victim unintentionally committing pension liberation fraud, where pension savers try to transfer their benefits to an unregulated scheme before the age of 55. In this case, not only could the intended victim lose their retirement savings, but they could also face a tax bill from Her Majesty's Revenue and Customs (HMRC) of 55% – and possibly as high as 70% – of the value of their full pension savings.

How to spot a pension scam?

Pension scammers may try to impersonate financial or pension advisers by offering a "free pension review"in an attempt to gain your trust. The Financial Services Register has a list of Financial Conduct Authority-authorised firms that can be checked before moving forward with any money transfers.

In the UK, thanks to the government ban and fines, no legitimate investment or pension firm will cold call you about releasing funds from your pension, accessing it before you are 55 or loopholes about tax savings. Cold calling about pensions is likely a sign of a scam, and there are a few other terms and tactics to remain suspicious of if someone contacts you about of the blue about your pension:

  • Free pension review.
  • Pension liberation, loophole, loan or savings advance.
  • One-off investment, cashback.
  • High-pressure sales tactics or time-limited deals.
  • Overseas, unregulated investments.
  • Promises of high/guaranteed returns.

Keep safe from pension scams

Pension scammers can be financially knowledgeable and present as believable in their attempts to gain access to your hard-earned savings. The Pensions Regulator, a non-departmental public body that regulates work-based pension schemes in the UK, and the Financial Conduct Authority (FCA), a financial regulatory body in the UK, have a pension scam leaflet with four simple steps to protect yourself:

Reject unexpected offers

It's very unlikely that a legitimate pension scheme will contact you out of the blue.

Check who you're dealing with

It's always worth investigating anyone that approaches you with an investment opportunity. Ensure they are registered with the relevant regulatory bodies in your country.

Don't be rushed or pressured

Scammers may attempt to pressure you into making a decision, but it's worth taking the time to investigate the sources of potential offers before agreeing to them.

Get impartial information and advice

If you're concerned about a potential offer or deal, it's a good idea to plan carefully and contact an impartial adviser, not affiliated with the company, for advice.


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