5 common pension scams to look out for if you're approaching retirement

As the cost of living crisis continues to unfold, The Pensions Regulator (TPR) has warned that savers might be at higher risk of being targeted by, and falling for, pension scams.

Alongside this, recent data released by Scottish Widows showed that 28% of people in the UK who have a pension are worried about falling victim to a pension scam. Pension scams are of growing concern, so how can you make sure that you can spot a scammer from a mile away?

If you’re approaching retirement or are worried about your pension, here are five pension scams to watch out for so that you can be sure you keep your savings safe.

1.       Pension liberation

One of the most common types of pension scams is called “pension liberation”.

You can access your defined contribution (DC) pension after you turn 55, and this will rise to 57 in 2028. You might be allowed to access your pension before this age under very exceptional circumstances, for example if you are in very ill health or have been diagnosed with a terminal illness.

When you reach the age at which you are eligible to access your pension, you can withdraw up to 25% of your DC pension savings tax-free. Withdrawing early without meeting the strict eligibility criteria can generate tax bills of up to 55% of the withdrawal.

Scammers might inform you that due to a loophole, they can help you to access your pension early without the tax liability, but this will often come with high fees of up to 30% of the withdrawal, or require you to invest your remaining pension into high-risk schemes.

In reality, accessing your pension before age 55 will result in you being taxed at a very high rate, so be wary of anyone who claims otherwise. If you are ever in any doubt about the legitimacy of a claim, it’s best to call your pension provider directly on a phone number that you trust.

2.       Free pension reviews

A free pension review is another common type of scam that could catch you out if you aren’t being vigilant. Scammers sometimes offer these so that it looks as though they are legitimate and caring advisers. In reality, they are a front for less honourable intentions. Always be wary of being contacted about one of these, especially if they call you unexpectedly.

The scammer might use the free review to advise you to liberate your pension early as discussed above, or to invest your savings in dubious, high-risk funds that they promise will deliver high returns (this is also known as “investment fraud”).

This scam is particularly dangerous because it could be confused with free appointments offered by legitimate organisations like the Pension Wise scheme (now called MoneyHelper), a government-backed organisation that offers free advice for over-50s about how best to prepare for retirement.

If in doubt, remember that genuine advisers or pension providers will never call you out of the blue. They will also never object to you calling them back on a number that you trust, whereas scammers will be very reluctant to allow this.

3.       Scam pension schemes

Sometimes, scammers will advertise fake pension schemes that either don’t exist or are fraudulent. They might pressure you to invest in the new scheme or even suggest there is a limited time offer that you need to make the most of.

In some cases, scammers will even clone Financial Conduct Authority (FCA)-regulated pension schemes and claim to be calling from them. Well-known names like Saga, Aviva, and BlackRock can give a false sense of security and mean that victims are more likely to trust the person on the phone and transfer their money to them.

The FCA has a warning list of known clone or unauthorised firms and their contact details that you can check before engaging with anyone you’re unsure about.

4.       Claims management companies

There are legitimate claims management companies (CMC) out there who are regulated by the FCA and will help you to make a claim about a financial services institution if you have a complaint.

However, scammers will sometimes pretend to be calling from a CMC claiming that you have been mis-sold a pension. They will often tell you that they require you to pay a fee upfront so that they can begin an investigation to help you get your money back.

The only CMCs that you should work with are FCA-regulated. You can check the credentials of any legitimate firm on the FCA services register to confirm that they are regulated and follow all of the correct procedures.

5.       Recovering money that has been lost to scammers

Scammers are notoriously clever at noticing new opportunities to deceive savers, and pension scammers are no different. As well as claiming to help with pensions, some are also posing as organisations that will help you to recover lost money after you have been scammed.

These schemes usually charge an upfront fee that they say is needed for administration, tax and solicitors’ costs. They will usually cold-call and use high-pressure sales tactics.

The sad truth is that once you have transferred your money to a scammer, you are very unlikely to be able to get your money back.

The first thing you should do if you have been scammed is to report it to Action Fraud and the police. As with all of the scams mentioned in this article, be wary of anyone who calls or texts you out of the blue to discuss the scam.

How to spot a scam

Unfortunately, these types of scams have already taken, on average, tens of thousands of pounds from victims. According to Money Marketing, Action Fraud reported that the average amount lost to a pension scam doubled between 2020 and 2021 to £50,000.

Even though scammers are becoming more sophisticated in their methods, there are a few common threads that run through each of the scams that you can look out for.

• Cold-calling about pensions was made illegal in 2017, so this is a big giveaway that the person you’re talking to is a scammer.

• If it sounds too good to be true, it probably is. This includes promises to access your pension early, or investments that offer sky-high returns without risk.

• Terms such as “loophole” or “limited time offer” are also a red flag because genuine pension providers will never talk about these.

• If you’re ever unsure, call your pension provider back on a number that you trust, or get in touch with the Money and Pensions Service for information and guidance.

Get in touch

If you have been approached with a pension offer, or you want to check that an opportunity you have received is genuine, please get in touch. Email theteam@fortitudefp.co.uk or call us on 01327 354321.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.