How pension scams work
Certain warning signs may indicate you are dealing with a scammer – someone who aims to fleece your assets through exorbitant fees, by gaining direct access to your pension savings or by persuading you to make dubious investments.
Their actions have been further enabled with the introduction of pension freedoms (where consumers can get easier access to pension pots) and by overconfidence on the part of pension holders. It’s all too easy to believe you won’t be caught out, a conviction surprisingly more evident the more highly educated you are.
Don’t be fooled by the articulate and financially knowledgeable persona of the person you're dealing with. Scammers have become adept at giving this impression. They often direct their victims to seemingly credible websites featuring testimonials and seemingly authentic branding and marketing. These materials are often copied from legitimate sources, making it almost impossible to distinguish them from the real thing.
Fraudsters frequently make attractive promises to persuade pension savers to transfer their entire pension pot across multiple providers or to release funds incrementally. They can also convince savers to transfer their money into illegitimate pension schemes they control, resulting in stolen funds that are rarely recovered.
A popular scam in recent years involves the enticing promise of early access to pension savings. Scammers claim to have discovered a ‘loophole’ or ‘alternative method’ to secure a ‘pension loan’ or ‘savings advance,’. In reality, this leads to a high tax bill from HMRC, particularly if you withdraw from pension savings before the age of 55.
Identifying the warning signs
Cold calling is often a key indicator that something is amiss even though cold calls related to pension savings and investments have been illegal since 2019. Social media platforms are also used to target a wide range of individuals through their friendship groups, family, or professional networks.
Key signs of pension scam activity include:
- Language such as:
- 'liberate your pension'
- 'obtain a pension loan'
- 'use an early-access loophole'
- 'obtain a savings advance'
- 'limited time offer for this one-off investment opportunity'
- 'obtain cashback from your pension'
- Promises of guaranteed higher investment returns and/or high rates of income through schemes such as foreign property, high income bonds in renewable energy, sustainable forestry and cryptocurrencies
- Offers of early access to pension savings before age 55 without highlighting the significant HMRC tax bill that may result
- Use of pressurising tactics, such as sending couriers to victims to obtain necessary signatures
- Proposed investments in high-risk, unregulated, or unusual investments, particularly if overseas
- Opaque and/or complex investments that are difficult to understand
- Pension investments with fixed terms – which can lead you to realise something is wrong only after several years
Pension trustees are typically assigned the task of flagging suspicious activity when pension access or a transfer is requested. This may result in some requests being declined due to concerns about the receiving pension scheme's activity. However, investor awareness and vigilance are irreplaceable as scammers will often try multiple approaches: by charging high fees, getting direct access to your pension savings, or persuading you to invest in questionable investments.
Check who you’re dealing with
You should ideally speak to an independent adviser authorised by the Financial Conduct Authority (FCA) before accessing your pension benefits, and particularly before making a pension transfer. In some cases, taking advice is a regulatory requirement.
Check that the adviser you are using is authorised, and report any concerns about advice or information you have received:
- Check a financial adviser is authorised on the FCA Financial Services Register.
- Report individuals who provide unauthorised advice to the FCA.
- Check for known scams or find an authorised financial adviser on the FCA ScamSmart website.
Reporting scams or fraud
To enable authorities to investigate and prosecute scammers, it is crucial to report any knowledge or suspicions of pension scams.
In England, Northern Ireland, and Wales you can report fraud, cybercrime or scams online at Action Fraud, or by calling 0300 123 2040 to receive further information and victim support. If you live in Scotland, call Police Scotland on 101 or Advice Direct Scotland on 0808 164 6000.
Note: You should you record all relevant information in your report, including the name and contact information of those involved, and related materials such as websites and brochures.
You can also find information and links to reporting forms on the FCA Fraud scams reporting page. This helps the FCA to stop the individuals concerned and to warn others so they can avoid becoming victims.
What happens after you report a scam?
Once you have reported a scam, the authorities will review it for opportunities to investigate further but are unlikely to provide updates due to legal reasons.
And as it is often challenging to get your money back if you are a victim of pension fraud, it is better to take the attitude that prevention is much more favourable than a potential cure.
If you are concerned about suspicious activity involving any of your Netwealth accounts please note that we never get in touch with our clients – or those who register with us – through social media platforms and never request personal data or security information by email.
Please note, the value of your investments can go down as well as up.