Practical advice for avoiding pension scams

As the coronavirus pandemic continues to leave doors open for fraudsters, people with pensions must beware of scammers and consider the best ways to thwart them

Illustration: Sara Gelfgren

Fraudsters have ramped up their attempts to swindle people out of their savings in the last year. The Financial Conduct Authority (FCA) opened 24 per cent more pension scam cases in 2020 compared to 2019 and the Pensions Regulator is currently investigating more than £54 million of lost money. 

Scammers are taking advantage of the increased financial vulnerability of so many people across the country. One in four UK adults, or 14 million people, currently have low financial resilience as COVID-19 has battered incomes, pension funds and overall security. 

Professor David Blake, director of the Pensions Institute at London’s Cass Business School, says: “People who have lost their jobs have become desperate to find a way to pay the bills. If they are over 55, then the pension pot is an obvious thing to raid.” 

Fraudsters have become more sophisticated in their targeting. People are spending a lot more time online as a result of lockdown and unscrupulous schemers seize on this, with a rise in fake comparison websites or social media adverts that can be difficult to distinguish from legitimate services. 

Ever-changing scam tactics mean an already complicated investment, which hinges on complex terms like longevity risk, inflation risk or investment risk, has become even more difficult to navigate and protect. This presents a golden opportunity for fraudsters, who thrive on confusion and consumer trust.

Be vigilant and avoid cold calls

Claire Trott, head of pensions strategy at wealth management firm St. James’s Place, recommends vigilance at all times. “Know who you are talking to, ask for proof of identity and do not take any unsolicited calls,” she says. 

Many people believe they know the tell-tale signs of a scam. However, recent research from the Financial Conduct Authority (FCA) and the Pensions Regulator shows, alarmingly, almost half of UK adults aged 45 to 65 with a pension would take one or more actions that could expose them to common scam techniques. This includes almost a quarter of people (23 per cent) admitting they would engage with a cold call about pension plans, despite their illegality. 

While cold calling is certainly not the exclusive domain of pension fraudsters, it was banned for pensions in 2019. Any unsolicited phone call about a pension is therefore likely to be a scam. 

In Trott’s experience, callers tend to pace themselves; they might encourage further engagement by asking victims to visit a website or agree to receive so-called advice, which is the point where someone becomes trapped. She suggests anyone on the receiving end of a cold call trying to peddle pensions reminds the caller they are breaking the law and can face fines of up to £50,000.

Beware of so-called freebies

There’s no such thing as free pensions advice, according to Tom Selby, senior analyst at investment platform AJ Bell. He urges people to be wary of anyone offering financial support without asking for any money in return, such as a “free pension review” or “early access schemes”. The tempting offer of consultation allows scammers to see personal and precise details, while there’s no access to pensions before 55 unless someone has serious health issues. What’s more, funds taken out before that age are subject to especially high taxes.

Selby encourages people to double-check any adviser’s credentials on the FCA register, especially if opportunities sound too good to be true, as schemes offering high guaranteed returns are often at the heart of pension and investment scams. “The golden rule should be if you are in any doubt about whether or not the firm you are dealing with is legitimate, do not part with your hard-earned savings,” he says.

Anyone trying to hurry along decision-making about pensions should also set off instant alarm bells. Dr Anna Tilba, associate professor in strategy and governance at Durham University Business School, has noticed the COVID-induced boom in scams. She advises people to not be forced into making a quick decision about something with lifelong consequences. 

“The scammers may try to pressure you with ‘time-limited offers’ or even send a courier to your door to wait while you sign documents,” says Tilba. People should walk away if confronted with pushy techniques and not sign any papers without seeking vetted, regulated advice. 

Raising awareness to save hidden victims

Margaret Snowdon set up the Pension Scams Industry Group to help the sector act against the increase in fraudulent activity. She believes the number of reported victims represents a fraction of actual cases, which means the prevalence of scams isn’t fully understood. 

One of the terrible effects of being scammed is victims can feel too ashamed to report incidents. The reporting process isn’t straightforward or particularly user friendly, so there can be both emotional and technical barriers. 

Snowdon urges anyone affected to contact Action Fraud, the UK’s reporting centre for fraud and cybercrime, and take free guidance from the Pensions Advisory Service, as there is help out there. “Reporting needs to be publicised and easier to do or the problem will continue to be underestimated,” she says. Raising awareness can also protect others from falling into the same trap. 

As the pandemic threatens so many people’s financial security, it’s more important than ever to exercise extreme caution with money. Fraudsters target pensions because they’re one of the largest investments a person will ever accrue. There’s something particularly heinous about devastating finances that keep people afloat once they leave the workplace. Once those life savings are gone, they’re often impossible to get back.