How to avoid pension scams

Before you fall foul of a scam, make sure you educate yourself on how to keep safe.

An increasing number of fraudulent companies and cold callers are targeting savers with pension scams, claiming they can liberate pensions for lucrative investments, only to make off with your hard-earned cash. it’s a problem we hear about often at Pension Works – and once stung, there’s very little recourse.

Pension scams are now so prevalent that approximately £42 million* have been illegally siphoned from accounts since April 2014, according to the City of London police. Victims reportedly lost an average of £15,000^. While the government has introduced some new measures to crack down on scammers, they’re finding it increasingly difficult to keep up with their sophisticated scams.

What should you look out for?

“It could happen to almost anybody”, says James Davis, Independent Financial Adviser at Pension Works. “Scams are so sophisticated that it’s really difficult for people to tell what is real and what is not. Research from Citizen Advice found that nearly 11 million people received unsolicited calls, emails and texts about their pension in 2016 alone.

“There are a lot of cases where insurance and pensions brands are being duplicated for scams, alongside their websites, which are near-indistinguishable from the original. A third party should never receive your money and transfer it on your behalf. Everyone needs to be on his or her guard – because if you get caught out, it’s game over.”

How do you keep safe?

With the risk of losing a lifetime’s worth of savings in a moment, savers need to be aware of the signs of a con. One of the most common is to ask individuals to take out a large lump sum – and sometimes the whole pension pot – in order to invest it in ‘high returns’ ventures. The important point to remember here is that no investment has guaranteed high returns and that scams are often identified by incorrect terminology, spelling and grammar.

Almost all unsolicited communications referencing pensions are also likely to be scams, from unexpected text messages to individuals turning up at your door. They’re surprisingly effective: scammers have been known to use a whole host of techniques such as flattery and pressure to get you to part with your cash – so you have to be vigilant.

“To keep yourself safe you need to take a four-pronged approach,” says James Davis. “First, you need to check with the Financial Conduct Authority (FCA) for company regulation details. Second, review the company’s website. Then, check the telephone number in directory enquiries. Fourth, run a Google search for independent reviews of the company. Do the research and remember this piece of old advice: if it sounds too good to be true, it usually is. That goes for cold callers and doorstep salespeople too. It’s best simply not to entertain them as they are too often scams.”

The FCA also offers a service to check whether an offer has already been reported. Click here to see the FCA Warning List.

Why is this happening and how do we stop it?

The surge in pension scams can be traced back to the Pension Schemes Act 2015. The changes were introduced to give over-55s greater access to their pensions, and as a result, we’ve seen clients pay off debts earlier, pay off their mortgage or holidays, improve their home or pay for a child’s wedding.

However, the knock-on effect is that pension fraud has skyrocketed, according to City of London Police figures. In response to increasing scams, the government has announced a ban on cold calls relating to pensions, including emails and text messages, and tougher rules for setting up pension schemes have been introduced with substantial fines.

“While there have been some efforts to crack down on pension scams, for example, the FCA partnering with the government to close fraudulent companies, there is more they could do,” James says.

“Some big players working in the pensions sector, such as Barclays, are helping to raise awareness and finding some success. However, a great deal of the onus is on individual companies to introduce their own initiatives. What we’re trying to do is raise awareness in the world of pensions, so customers can protect themselves and ensure their pension meets their retirement needs. We’re here to provide help and advice”.

Make sure your pension is working as hard as you do. Start your Pension HealthCheck here