Avoid being a victim of a pension scam

Figures from the Financial Conduct Authority (FCA), show that although two-thirds of pension holders believe they are confident that they can spot the signs of a pension scam, only a quarter knew that being offered a free pension review was usually part of a scam, while 40 per cent were wary about opportunities to transfer a pension.1 

When pensions are transferred out by scammers they can be invested into unsuitable and risky assets, or simply stolen outright.

The government has recently introduced new rules for pension transfers, in an attempt to stop people losing their valuable pension benefits. Under the new scheme, pension trustees who previously did not have the right to refuse to transfer a pension, even if they had concerns that there was a scam involved, are able to refer members to the government-funded Money & Pension Services (MaPs) and can refuse the transfer altogether if it raises a ‘red flag’.

Guy Opperman, Parliamentary Under-Secretary of State at the Department for Work and Pensions (DWP), said that the measures: “empower trustees and managers to act and build on the ban on pensions cold calling and tougher rules to stop scammers opening fraudulent pension schemes government have already introduced.”2 

The new measures are not foolproof, however, and with an estimated £2m lost to pension scams in the first six months of this year alone,3 everyone should be aware of the main ways in which the scammers operate.

The signs of a pension scam

According to the FCA, everyone should be aware of some main signs that they may being scammed out of their valuable pension rights. These are

  • Being offered a pension review that you have not requested

If someone calls you out of the blue, offering to review your pension, it is likely to be a fraudster. If they say they are ‘returning your call’ but you do not remember making one, this is also a red flag.

  • Being offered ‘guaranteed’ higher returns on your pension savings, often from unusual assets

Nobody can guarantee what you will receive on pensions investments, so ‘guaranteed’ higher investments should be treated with suspicion. Being offered unusual investments which tend to be unregulated and high risk to provide you with these returns should be another warning sign.

Investments such as cryptocurrency, agriculture and forestry, property development and property investment schemes often feature when you are called by a pension scammer.

Investors tend to be offered things like loan notes or high-yield bonds, and sometimes the advertised rates are over 10 per cent.

The reality of course can be quite different.

  • Being told that you can receive your pension before the age of 55 (this age is rising to 57 in 2028)

Unless you have very specific circumstances, you will lose a lot of your pension savings to tax if you take it out early, but scammers try to tempt you to do so using words like ‘unlocking’, ‘liberation’.

Unless you are in specifically very poor health, have a special clause in your pension (which cold callers will not know about) or want to pay a large tax charge and fees that could wipe out almost all of your savings, ‘unlocking’ your pension is not possible.

  • High-pressure sales tactics such as ‘time-limited offers,’ or couriers coming to the door to wait while you sign documents

Reputable pension specialists do not engage in high pressure sales tactics and will offer a ‘cooling off’ period (usually 30 days), so if a salesman talks about ‘last minute opportunities’ or ‘limited time offers’ or even has a courier who can come immediately to help do the transfer this should be a clue that there is a huge problem.

What to do if you think you’ve been contacted by a scammer.

Check the firm is registered by the Financial Conduct Authority (https://register.fca.org.uk). This does not guarantee that you are not being scammed, as sometimes ‘clone firms’ are set up, but it is a useful check.

Check the FCA warning list to see if they are mentioned on this https://www.fca.org.uk/scamsmart/warning-list

If you’ve given your bank or pension account details to a firm you think may be operating a scam, tell your pension provider or bank immediately. They may be able to stop a transfer.

Contact Action Fraud on 0300 123 2040.

If you think you are not making the most of your pension and are considering transferring it, the Government has a free PensionWise service for the over 50s, while a financial adviser will be able to give you a more holistic view of your finances.

1 https://www.fca.org.uk/news/press-releases/scammers-target-pension-pots
2 https://www.gov.uk/government/consultations/pension-scams-empowering-trustees-and-protecting-members/pension-scams-empowering-trustees-and-protecting-members-consultation
3 https://www.pensionsage.com/pa/FCA-issues-warning-to-savers-as-over-2m-lost-to-pension-scams-in-2021.php