Pension scams: understanding the warning signs

You’ve worked hard to build up your pension fund, so the last thing you want to do is lose the whole lot to scammers.

With pension scam victims losing an average of £91,000 1, it pays to understand scammers’ tactics.

How it starts

Scams usually begin with unsolicited contact. This could be a phone call, text or email out of the blue.

You should be extremely wary of unsolicited contact, a genuine firm won’t mind you hanging up and calling them back. So always look up the number in the telephone directory or from any official correspondence you’ve received. Never call back a number given to you by a cold caller.

Cold callers can also pretend they’re calling from a genuine number. Even if your call records show what appears to be a genuine number, it may could have been cloned by a scammer.

Pension cold calls are due to be banned in January 2019 so you shouldn’t expect any call about your pension, other than from your pension provider, pension scheme or the government. If you receive a cold call from any of these bodies, politely explain that you’ll call them back.

This outlawing of cold contact may not completely deter people intent on stealing your money. It’s important to remain vigilant, even after the new rules come into force. Here are a few common pitches scammers use to initiate contact.

 1. The offer of a ‘free’ pension review

You may not have taken a close look at your pension for some time. A free pension review therefore sounds like quite a good thing to do.

However, the only way to get a proper review of your pension is to consult a regulated financial adviser.

If you don’t want to pay for financial advice, you’ll need to do your own research. Help is available from the government’s Pension Wise or the Pensions Advisory Services. Although unlike a financial adviser, these bodies can’t tell you what you should do or whether your pension is performing well or badly.

2. The chance to ‘unlock’ cash in your pension

Unlocking your pension is tempting you’re at your most financially vulnerable. However, you cannot normally access your pension before the age of 55.

If a scammer helps you access your pension by transferring money into a dodgy pension scheme, they’ll usually expect a large slice of your money in return and may even steal the whole lot. Her Majesty’s Revenue and Customs (HMRC) will also penalise you for accessing your pension early.

You can only access your pension before 55 if you’re in poor health or have a ‘protected’ pension age of less than 55. Speak to your pension scheme or pension provider if this is the case rather than someone offering to unlock your pension.

If you’re over 55, you’re free to take your whole defined contribution pension fund with up to a quarter tax-free. You don’t normally need anyone’s help to do this – speak to your pension scheme or provider who will explain what steps you need to take.

If your pension is a defined benefit pension (a specified pension payment or lump-sum on retirement) you should speak to your pension scheme or the trustees.  They will explain whether you can take your pension and tax-free lump sum early or whether you will have to transfer to a defined contribution pension (based on how much is paid in) to do so. If it’s the latter, you’ll need to take regulated financial advice in most cases.

3. A fantastic investment opportunity with ‘guaranteed’ returns

One of the most common pitches is for scammers to propose a way to improve your investments’ performance. When markets fall in value and when interest rates are around 1% or less, a 6% or 8% ‘guaranteed’ return will sound great.

The ‘investment’ opportunity will typically be in something unusual such as property development, hotel rooms, storage units or car parking lots, both in the UK and abroad. In this case, the adage ‘if it sounds too good to be true, it probably is’ applies. 

If you want investment advice and you’re not a confident investor, make an appointment with a regulated financial adviser.   

How to reduce your chances of being scammed

Firstly, don’t reply to cold calls or texts. Think about using a telephone that allows you to block calls from numbers other than ones you’ve chosen to trust.

Don’t answer calls from numbers you don’t recognise. Genuine callers will leave a voicemail and you can always add them to your trusted caller list if they turn out to be genuine.

The Financial Conduct Authority offers further guidance and tips on how to avoid being caught out by scammers. Learn more about their ScamSmart initiative here.