It’s unfortunate, but pension scams are on the rise. Fraudsters are becoming more sophisticated, making it vital to stay vigilant and aware of potential scams. Below are some top tips and resources to help you stay financially safe and protect your pension savings.
What is a Pension Scam?
A pension scam is a form of fraudulent activity aiming to take money from someone’s pension. Pension scams come in all shapes and sizes, but the most common include pension liberation, pension investment, pension review, and pension advice scams.
Pension Liberation Scam
What they offer:
The ability to take money from your pension before 55.
The aims:
- To cash in a pension and move it to an unauthorized account.
- To charge a high fee, meaning you’d only receive some of the money you withdraw.
Not only could you lose the money you are instructed to take out, but these types of scams can also lead to huge tax bills. You could face a tax charge of 55% as a penalty for taking money early.
Pension Investment Scam
What they offer:
High investment returns on pension investments.
The aims:
- To transfer a pension to an unauthorized account.
- To transfer the pension and then invest it into scam investments.
These types of scams often offer unrealistic investment returns, which are sometimes framed as overseas investments.
Pension Review Scam
What they offer:
A ‘free’ review of your pension and investments.
The aims:
- To gather information about your pension to authorize a transfer to an unauthorized account.
- To transfer the pension to an authorized account which leads to another type of scam, e.g., scam investments.
Be particularly wary of this type of scam as you approach retirement.
Pension Advice Scam
What they offer:
‘Free’ pension advice.
The aims:
- To gather information about your pension to authorize a transfer to an unauthorized account.
- To transfer the pension to an authorized account which leads to another type of scam, e.g., scam investments.
If you’re aged 55-64, you’re more likely to be targeted with this type of scam. Be careful and stay alert as you near retirement age.
How to Spot a Pension Scam
Spotting a scam isn’t always easy, but there are some tell-tale signs you can watch out for:
- Unexpected contact – Scammers often cold-call their victims. They can also get in touch by email, text message, post, social media, or even word of mouth. The Pensions Regulator stresses that any unexpected contact is a major red flag, especially if they ask you to transfer your pension.
- Pressure tactics – You might be told you have a limited time to act or that you’ll miss out on a bonus or discount if you don’t act before a certain date. Always take time to consider your options and never rush your decision.
- Unrealistic returns – To tempt you in, scammers often promise impressive or guaranteed returns. They’ll even play down the risks. If it sounds too good to be true, it often is.
- Incentives offered – Scammers might incentivize you to make a transfer. This includes bonuses, loans, or a limited-time investment offer.
- Unauthorized companies – If someone contacts you about financial advice (this could be advice on a pension transfer or where to invest your pension), they must have FCA permission. You can check if a company has permission to use the FCA register.
- Out-of-the-ordinary claims – Most financial products, including pensions, must meet certain rules and regulations. Scammers might use these rules to bend truths and lure you in. For example, it’s true that you can access a pension before 55, but generally only if you’re in ill health.
The Pension Regulator also highlights some other warning signs which could indicate a scam. These include:
- High-risk or unregulated investments – The FCA has outlined general examples which may help you identify a high-risk investment:
- Investments that promise significant returns at a point in the future.
- Investments that would normally be offered only to high-net-worth, sophisticated, or professional investors.
- Investments that are unconventional or abstract.
- Unclear or high charges – This can include paying several charges to associated parties, which together add up to an excessive amount.
- Complex investment structures – If the pension scheme’s investment structure is complex and unclear, or if overseas investments are included, it’s a red flag.
If you come across any of these signs, seek guidance immediately.
FAQs
What is a pension scam?
A pension scam involves fraudsters attempting to take money from someone’s pension through various deceitful methods, such as offering high returns on investments or unauthorized transfers.
How can I spot a pension scam?
Look out for unexpected contact, pressure tactics, unrealistic returns, unauthorized companies, and out-of-the-ordinary claims. Always verify with the FCA register.
What should I do if I think I’m being scammed?
Contact the FCA, seek advice from a trusted financial advisor, and report the scam to Action Fraud.
Can I access my pension before 55?
Generally, you can’t access your pension before 55 unless you’re in ill health. Be wary of anyone offering early access to your pension.
Are free pension reviews legitimate?
Often, ‘free’ pension reviews are a tactic used by scammers to get your personal information. Always verify the legitimacy of the advisor and consult with trusted sources.
What are the tax implications of falling for a pension liberation scam?
You could face a tax charge of 55% as a penalty for taking money early from your pension in a liberation scam.
Pension scams are a growing threat, but by staying informed and vigilant, you can protect your hard-earned retirement savings. Always be cautious of unsolicited offers, verify the credentials of anyone offering financial advice, and never rush your decisions. Your financial future is worth the extra scrutiny and care.
