Cost-of-living crisis means more people vulnerable to scams

interactive investor comments on The Pensions Regulator's three-year scam strategy.

The Pensions Regulator has warned of a greater risk of vulnerability to pension scammers during the cost-of-living crisis, with people who are struggling being more susceptible to fake promises of early pension access, for example.

As it published its new, three-year scam strategy this morning, the regulator said it would do more to educate savers about the threat that scams present; encourage higher standards and prevent practices which lead to harm and fight fraud.

It defined a pension scam as:

“The marketing of products and arrangements and successful or unsuccessful attempts by a party (the “scammer”) to: 

• release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member 
• persuade individuals over the normal minimum pension age to flexibly access their pension savings in order to invest in inappropriate investments 
• persuade individuals to transfer their pension savings in order to invest in inappropriate investments

where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.”

The strategy lays out seven kinds of pension scam, plus one spin-off scam, known as a ‘recovery room scam’ where fraudsters offer to help someone who has been scammed get their money back:

1. Investment fraud – those who misrepresent high-risk or false investments to savers
2. Pension liberation – where scammers mislead savers into accessing their pension pots under the age of 55, unaware that they will incur a tax charge or potentially engage in tax evasion
3. Scam pension schemes and providers – schemes and providers set up to deceive victims, which either don’t exist or exist but are committing fraud
4. Clone firms – scam schemes and providers that are disguised as legitimate entities
5. Claims management companies – such as cold-callers who claim savers have been mis-sold a pension and then ask for an advance fee to begin a claims process
6. Employer related investment (ERI) – breach of ERI restrictions when employers divert employees’ pension payments to invest inappropriately in their business leading to losses to savers
7. High fees – excessive fees often layered through unnecessarily complex business structures

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Pension scams involving people’s life savings are among the most devastating. Bluntly, they ruin lives. 

With the cost of living crisis biting harder than ever, the temptation of fake promises like early access to a pension or higher investment returns leaves people even more vulnerable than usual. 

“Preventing pension scams should be one of the most important things on the agenda and we need to start with a better understanding of what a pension scam actually is. 

“The Pensions Regulator’s ‘seven types of pension scam’ is helpful and worth a read for everyone with a pension. 

“Anyone can be targeted, even people who have not yet retired. Scammers are so clever now that you might not even realise you were vulnerable to this kind of marketing pitch until it is too late.

“It’s vital for an industry that has been no stranger to scandals to clamp down on pension scams – trust in pensions is important if people are going to be able to retire well in years to come. 

“We need people to engage with their pension savings with confidence and security, not live in fear of touching them.”