With less than one year until unused pensions fall into the scope of inheritance tax, pension savers are being warned they could become targets of a new breed of scammers trying to exploit the upcoming changes.
Pension scams are already a significant problem as criminals try to con people out of their life savings. Action Fraud revealed a total annual loss of £17.5 million across the country in 2024. This equates to roughly £48,129 lost to pension fraud per day.
There are fears these numbers could rise as individuals try to avoid an inheritance tax bill on their retirement savings.
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From 6 April 2027 the government will include unused pension funds within a person's estate for inheritance tax purposes. This means IHT could be due on your pension savings when you die.
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Research from Standard Life, which quizzed 2,000 adults in February, revealed a high level of concern about these changes. One in five (22%) say they feel less confident about pensions as a result, and over half (54%) are worried their beneficiaries could face a higher inheritance tax bill when they die.
Periods of change and uncertainty can increase the risk of pension scams – particularly if people feel rushed into decisions or act without trusted advice or guidance.
Mike Ambery, retirement savings director at Standard Life said: “With less than a year to go until inheritance tax applies to unused pension pots, it’s understandable that many people are reassessing how their retirement savings are used and passed on. However, scammers thrive on fear and uncertainty – when people feel unsettled or rushed, they’re more likely to fall victim to a scam.
“As we move closer to the rule change, fraudsters are likely to prey on any confusion, perhaps presenting themselves as offering so-called ‘solutions’ such as moving pension savings into arrangements that claim to avoid inheritance tax altogether. Offers like these might sound reassuring, but they can put people’s retirements at serious risk.”
Scam targets
Scammers often take advantage of confusion around policy changes to attempt to steal savers’ money.
For example, a slew of scams emerged after pension freedoms were introduced in 2015. The Work and Pensions Committee found that by offering pension savers access to a much wider range of investments, the freedoms also put people at risk of a much wider range of scams and financial fraud.
Claire Trott, head of advice at wealth manager St. James’s Place, said the incoming inheritance tax rule changes around pensions pose similar risks, especially from people withdrawing large sums in a bid to avoid IHT.
“With the legislation and communication around how this will work remaining vague, some people may be tempted to withdraw large sums from their pension out of fear their families will be hit with an IHT tax bill in future,” she said.
“This is particularly worrying as it can increase vulnerability to potential scams.
“Pension providers offer protection against scams. When savings are taken out of these schemes they are more susceptible to fraudulent activity,” Trott added.
The number of people making lump-sum withdrawals from their pensions as soon as they could hit a post-pandemic high in 2024. Experts are predicting the trend to accelerate ahead of upcoming inheritance tax rule changes.
Those who withdraw funds with no real plan for what they are going to do with the money can find themselves at a higher risk of scammers.
They may be approached by someone offering to take care of their cash, IHT-free, and while this may sound appealing, it could be a scam.
“Anyone that is considering accessing their pension to avoid an IHT bill should seek financial guidance where possible, especially if they're taking money out without knowing what to do with it,” said Trott.
“It’s important to be armed with information about how to navigate the upcoming changes, but also to ensure hard-earned pension savings are kept safe from scammers.”
Pension scam warning signs – how to avoid being scammed
Be wary of unsolicited calls
Pension cold calling is illegal in the UK. If you receive a call from an unknown caller about your pension, it’s likely to be a scam, so do not share any personal information or move money out of your pension at their instruction.
Hang up or if you can get some information on them – their phone number and company name – report it to the Information Commissioner’s Office.
Be cautious of emails, texts, or messages on social media offering “free pension reviews” or “guaranteed returns” too.
Don’t be rushed to take action
“A tactic scammers often use is to pressure you to act quickly,” said Trott. “Take your time to make decisions and consult with trusted advisers or family members before moving money from your pension.”
Remember, a genuine adviser will give you time to consider and won’t rush you into a decision.
Avoid early access offers
“If you’re told you can access your pension savings before the minimum age of 55, rising to 57 from 2028, this could be a sign of a scam. As well as putting your savings at risk, it may also result in a significant tax bill,” said Ambery.
Be aware of red flags
Promises of “high or guaranteed returns”, "overseas investments" or schemes that seem too good to be true, probably are.
Requests to transfer your pension into a single investment, especially if you’re offered cash back or an upfront bonus, is another red flag to avoid.
Be cautious of convincing voices, videos or messages
“Scammers may use artificial intelligence or ‘deepfake’ technology to mimic real people, organisations or even familiar voices. Even if a call, video or message looks or sounds convincing, it’s important to independently verify who you’re dealing with by using trusted contact details or official websites before taking any action,” Ambery said.
Refer to trusted sources
Government-backed services like MoneyHelper or Pension Wise are safe sources to use for pensions guidance.
It may also be worth speaking to a regulated financial adviser who can guide you through the upcoming pension and IHT changes and how to manage your estate.
