How to spot a pensions scam

Fraudsters are actively targeting retirement pots, but a few simple tips can help keep your money safe.

We work long and hard to build up our pension pots, which are meant to give us peace of mind in a long and happy retirement. 

So it is almost unthinkable that scammers could target this money and leave pensioners – many of whom are vulnerable – with depleted or entirely missing retirement savings.

Yet that is the reality facing all too many retirees. More than £30 million has been successfully stolen by pension scammers since 2017, according to figures from Action Fraud, the police scams unit. These losses ranged from under £1,000 to £500,000.

But there is no need to be disheartened. Consumers can help protect themselves against these scams by taking simple precautions and educating themselves about the way pension fraudsters operate.

The scale of the problem

Sadly, the Action Fraud figure is likely to be the tip of the iceberg, as it only represents suspected pension scams that have been detected by consumers and then logged with the police. 

The Financial Conduct Authority (FCA), the financial regulator which protects consumers, says many individuals are scammed without realising. This can be because they do not recognise fraudulent behaviour or because they are unaware how much is in their pots, so losses do not register.

Others may be ashamed to admit they have been caught out or do not know what to do about it.

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Rebecca O’Connor, head of pensions and savings at interactive investor, says: “Scams are now so widespread that if you have never been targeted you can consider yourself unusually lucky. At some point, most of us will be targeted by a scammer.”

Why pension scams happen

The appeal of pension pots for scammers is clear – huge sums of money can quickly be unlocked by consumers for the first time in their lives. Many are unsure what their options are for that money, and that opens the door for criminals to take advantage.

Since 2015, savers have had more flexibility to invest their pensions as they wish thanks to pension freedoms rules. 

These allow retirees with defined contribution pensions to access their pots in any way they want, including taking the entire lot as a lump sum.

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However, that has left them vulnerable to attempts from fraudsters to convince them to transfer their cash into bogus investments or their own bank accounts. 

The same is true for those with defined benefit (DB), or final salary pensions, if a scammer convinces a retiree to transfer cash out of the scheme.

Consultancy XPS Pensions said the threat of pension fraud was at record highs, with almost two-thirds of DB transfers in September involving a possible scam. In 2017, just 5% of transfers had such a red flag.

The aim of these fraudsters is to get pension savers to release some of their cash, or transfer the entire pot, according to The Pensions Regulator. This money is then stolen outright or often reinvested into high-risk schemes.

Many scammers persuade savers to transfer their money into single member occupational schemes, or other occupational pension schemes. 

Falling victim to one of these scams means savers could lose some or all of their money. But a further sting in the tail is they also face a high tax bill from HM Revenue and Customs (HMRC) if they withdraw their pension savings before the age of 55, as some criminals entice them to do.

The warning signs of a scam

These criminals traditionally worked by cold calling, which has been banned since 2019.

But many scammers, not known for their law-abiding nature, still cold call retirees. Getting such a call is an instant sign of a possible fraud.

However, financial fraudsters have also moved on to other methods. These include contacting people on social media, or pretending to be a legitimate pensions company online and waiting to be contacted.

The Pensions Regulator says many may use enticing phrases such as ‘free pension review’ or ‘pension liberation’, or promise they can get you a better return on your pension savings.

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Another hallmark of a scam is high-pressure sales tactics, such as saying a particular offer is time sensitive.

The offer of high-risk investments is also a classic sign of a pension fraud, particularly those based outside the UK in areas with different – and often weaker – regulation.

Helen Morrissey, pension specialist at Royal London, said: “Basically, if something sounds too good to be true then that should ring alarm bells. Being contacted out of the blue with offers of free pension reviews or access to high-performing investments should be treated with caution, as should being pressured to make a decision quickly. 

“No independent financial adviser would pressure their client into making a quick decision regarding their pension investments, so this is a real red flag.”

Also be aware that many scammers are masters of psychology, and will use that to their advantage.

Morrissey said: “Scammers often befriend their victims so they feel obliged to do as they are told. However, you should never be scared to terminate contact with someone you feel is pressurising you to make a financial decision.”

How to protect yourself against scams

Consumers should be aware of all of the signs of a scam mentioned above, but there are other ways to check if someone alleging to be from a pensions company is legitimate.

Firstly, this is a rare situation where being cynical is a good thing. 

O’Connor says: “You have to stay vigilant, because these attempts are currently happening all day, every day, and it might only take one absent-minded moment for you to click on a link in a text or email, and then get pulled into giving away some details without even knowing how it happened.”

Secondly, do your research on companies that offer these sorts of pension services. The FCA’s ScamSmart website lists known frauds.

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You can also check the FCA register online to see if a company is authorised, and therefore legitimate.

Dealing with an unauthorised firm means you are not covered by the Financial Services Compensation Scheme safety net, or the Financial Ombudsman Service if anything goes wrong.

And remember not to make hasty decisions, no matter how good a deal looks.

Ray Walsh, digital privacy expert at online security company ProPrivacy, says: “Never rush into anything, seek advice from family members or investment experts and carefully consider whether an investment opportunity is likely to result in fraud.”

While the prospect of your pension being defrauded is an understandably worrying one, the key is not to worry but instead to take action with a few sensible precautions. 

By doing so, you drastically reduce the chance of any disruption to your pension money and ensure you get to enjoy the retirement you have worked for.