Pension scams: 5 things to keep in mind

Your pension is likely to be one of the largest assets you own and crucial for financial security throughout retirement. Yet, research suggests that five million pension savers are at risk of falling prey to scams.

It’s not surprising that criminals choose to target pensions. After all, they typically hold significant sums and some consumers aren’t fully aware of the regulations around accessing pensions. As a result, it can be relatively easy to get pension holders to part with their savings personal details. You might think that you’d never fall for a scam, but the truth is sophisticated scammers can be very convincing. Knowing what to watch out for can protect your savings.

The risk of falling prey to a pension scammer

New research from the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) suggests that millions could be at risk of losing their retirement provisions. 42% of people, which equates to over five million people in the UK, could be at risk of falling for at least one of the six most common tactics used by pensions scammers.

Those actively looking for ways to boost their retirement income and secure the lifestyle they want were even more likely to be drawn in. Six in ten individuals hoping to increase the income their pension delivered could fall victim to a scam. The research indicated that those that think of themselves as financially savvy are just as likely to be persuaded as anyone else.

The research highlighted which tactics were most likely to lead to responses that scammers want:

  • 23% would talk to a cold caller that wanted to discuss pension plans
  • 23% would pursue exotic investment opportunities if offered to them
  • 17% would be interested in an offer from a company that said they could get them early access to a pension
  • 13% would pursue an offer of guaranteed high returns on pensions
  • 10% would say ‘yes’ to a free pension review from a company they’ve never dealt with
  • 7% would say ‘yes’ to a special deal that has a time-limited offer

When you consider that the average pension fraud victim reported a loss of £82,000 in 2018, it’s a crime that can be devastating. Losing a significant sum from your pension can mean retirement plans are no longer viable and may even mean financial insecurity in the future.

Psychologist Honey Langcaster-James said: “Most people are confident in their ability to avoid being scammed. We tend to assume that it would never happen to us because we think we’d notice something if it wasn’t right. But even the smartest and savviest among us can become victims of crimes and we do often have a ‘blind spot’. Sophisticated scammers take advantage of this and use powerful psychological techniques to build trust and rapport and ultimately to influence behaviour.”

So, what do you need to be aware of to protect your pension savings?

1. Cold calling is banned

First up, whilst 23% would discuss their pension with a cold caller, the government banned pension cold calling at the beginning of the year to provide individuals with greater protection. Reputable firms will not reach out to you through an unsolicited call. There are also restrictions in place for unsolicited texts and emails. Whilst not covered by restrictions, you should exercise caution over unsolicited contact made on social media too.

If you don’t have an existing relationship with a caller or they’re not calling from an organisation that already provide you with a service, such as a pension scheme, take a step back.

2. ‘Pension reviews’ is a term used to draw you in

It’s easy to see why ‘free pension review’ might be enticing. Pensions and retirement planning can seem confusing and the offer of help tempting. However, this is a phrase that’s often used by scammers to start collecting your personal data and build a rapport for offering you other services down the line.

Pension and retirement advice should be tailored to you and can take significant resources and time. If you’re offered a free review, ask yourself how they’ll make money. The adage, ‘there’s no such thing as a free lunch’ is worth keeping in mind.

3. It’s unlikely you can access your pension before the age of 55

In 2015 how and when we can access pensions changed significantly. It’s afforded retirees far more freedom, but a lack of awareness also offers an opportunity for scammers. If you have a Defined Contribution pension it’s usually now accessible from the age of 55. But you might be looking for ways to access it even earlier.

Scammers know this and may suggest they can unlock your pension early. However, it’s very unlikely that this is possible without resulting in a significant tax bill. In rare cases where it would be possible, if you had a terminal illness, for example, you should contact your pension provider.

4. All investments carry a level of risk

If you’re contacted about investments that boast ‘guaranteed returns’ or have ‘no risk’, it’s easy to see why you’d want to hand your savings over. After all, you want to maximise your retirement income. As tempting as that might seem, all investments carry some level of risk and it isn’t possible to guarantee returns.

Whilst we’re looking at investment risk, it’s important that you understand what you’re investing in. Scammers will often suggest that pensions be invested in ‘exotic’ investments that offer ‘high returns’. However, these will usually have a high level of risk that isn’t suitable for the majority of pension savers.

5. A professional will understand you asking questions and taking your time

Making decisions about your retirement and pensions will have an effect on your long-term financial security. As a result, you need to feel comfortable with the choice you’re making. This may include asking questions about how your money will be invested, checking historical performance or simply taking your time to think about it. A professional will understand this and be happy to aid your understanding.

Scammers, on the other hand, are likely to avoid giving you a direct answer and may pressure you with time constraints, such as stating it’s a time-limited offer or a courier can bring you the paperwork quickly. Don’t be pushed into making quick decisions that could affect the rest of your life.

If you’d like to discuss your pension or have any concerns about communication you’ve had, please get in touch.

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