Common pension scams to watch out for

As the government introduces new measures to tackle fraudsters, we highlight the common pension scam tactics they employ ‒ and how to avoid them.

Worried man on a laptop
18% of men have been targeted by pension scammers
(Image credit: © Getty Images)

Cold calls around financial products are to be banned under new proposals from the government aimed at cutting financial frauds, including pension scams.

It means that anyone receiving a call or message out of the blue about a financial product, such as gaining early access to your pension, will know that it is a scam.

Alongside the cold calling ban, the government has also said that it will work with Ofcom, the communications regulator, to prevent ‘spoofing’. This is where scammers are able to make it appear that they are calling from UK phone numbers, helping them impersonate legitimate businesses.

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Finally, ‘SIM-farms’, which allow scammers to send texts to thousands of people at the same time, will also be outlawed.

One of the most common scams are pension related - we look at what they are and how to avoid becoming a victim to such a scam.

Growing concerns over pension scams

Pension scams have been a growing concern ever since the introduction of the pension freedoms back in 2015. Those freedoms gave savers greater say over how and where their pension money was invested, but it has also opened the door to fraudsters looking to con people into handing over that money.

A study last year by Scottish Widows suggested that around a fifth (18%) of men had been targeted at least once by pension scammers, while almost one in 10 (7%) of women had been on the receiving end of a scam attempt. Around a quarter of pension savers (28%) said they were anxious about falling victim to the fraudsters.

The general economic situation has further opened the door to potential pension scams. Research by the Financial Conduct Authority (FCA) in October pointed to a greater interest among savers in accessing their pots in order to help with the cost of living crisis, making them vulnerable to scam tactics.

So what do these scams look like in practice? Analysis by The Pensions Regulator (TPR) has picked out seven separate types of scam, variations of which are now commonly pursued by fraudsters.

Investment fraud

First off we have investment fraud.

This is where the scammer attempts to talk you into moving your pension funds into risky or even non-existent investments, with the promise of high or guaranteed returns. Examples of these sorts of investment include overseas property, parking garages, and storage units.

These assets are typically unregulated and likely to fail.

Pension-liberation schemes

Pension-liberation schemes are also common. Fraudsters will target people worried about the cost of living crisis who are looking to tap into cash they have previously saved in a pension.

Regulation makes it almost impossible for savers to access such cash until they reach age 55, unless they are prepared to hand over more than half the money in tax penalties.

Scammers claim to have identified loopholes to get around the rules. Not only are their claims false, but the scammers often take charges of 30% or more.

Fake pension schemes and pension providers

Some fraudsters go as far as setting up bogus pension schemes and pension providers. These arrangements typically promise better returns than existing pension schemes, and are often associated with high-pressure sales tactics. Fraudsters then walk away with savers’ cash.

Clone firms

These are fake companies set up with names and registration data that deliberately mimic those of legitimate businesses. The Financial Conduct Authority maintains a growing list of clone firms.

Cold calls from pension companies

If you ever receive an unsolicited call from a pension company, hang up the phone immediately. The practice of making cold calls about pensions is now illegal, so any firms trying to sell this way are breaking the law.

These may be more difficult to detect. They typically involve cases where employers divert employees’ pension contributions to invest inappropriately in their businesses. If you have any concerns about how your employer runs its occupational pension scheme – if it does not publish independently audited accounts, say – contact TPR.

Complicated business structures

Fraudsters might contact you to tell you about a complicated business structure, often with multiple layers, that ultimately result in you paying exorbitant charges.

All savers should keep a close eye on the fees they pay, but these fraudulent structures are set up to extract eye-watering amounts from you. There are even scams targeting people who have already been cheated, with fraudsters promising to go after lost cash in return for additional high charges.

Will I get my money back from a pension scam?

Feeling duped by a scammer is bad enough, but it’s made even worse by the fact that very few victims ever get anything back.

Indeed, most cases are not even investigated by the authorities. A Freedom of Information request from Quilter revealed that since 2015, an average of just 29% of pension fraud reports submitted to the central Action Fraud body were then disseminated to local police forces for investigation.

Because pension scams can be extremely complex, and require considerable resources from police units in order to be investigated properly, only cases where the authorities believe there is a chance of a successful criminal justice outcome are prioritised.

And the chances of managing that for most scam cases are extremely slim, which is why so few end up being handed to the police and why it’s so crucial that we are all on our guard against potential scammers.

How to avoid pension scams

According to The Pensions Regulator, scammers are becoming more sophisticated in catching people out, though there are certain telltale signs that you can look out for.

These include:

  • Being offered a ‘free pensions review’
  • Using phrases like ‘pension liberation’, ‘loophole’, or ‘savings advance’
  • Guaranteeing that they can get you better returns on your pension savings
  • Promising to help release cash from a pension before you are 55, without mentioning the tax bill that can be incurred
  • Using high pressure sales tactics, such as pushing you to move quickly in order to qualify for a time limited deal
  • Promoting unusual, high-risk investments ‒ these are often overseas, unregulated and with no protection for consumers
  • Promoting complicated investment structures
  • Being offered a fixed-term pension investment, meaning that you may not realise something is wrong for several years

How to report a scam

You should report a scam to the authorities if you believe a scam has already happened, if a red flag is raised while making a transfer, or if you suspect a pension scam could be taking place.

You can report fraud, cyber crime and concerns to Action Fraud online or by phone. You can also get in touch with the Financial Conduct Authority and The Pensions Regulator.

John Fitzsimons

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.