Consumer Guide Against Pension Fraud and Scams

  • You've worked hard for your pension.
  • Don't let the fraudsters get their hands on it…

From 'legal loopholes' claiming to allow early access to pension funds to 'pension liberation' schemes, pension scams are on the rise.

Men with piggy

Knowing how to spot the tell-tale signs of a pension scam.

Consumer Guide Against Pension Fraud and Scams

This comprehensive guide aims to educate and protect the general public against the many different pension scams and benefits fraud, and offer useful tips on what to do in case you feel you are being targeted by a pension scammer.

1. The changing face of pensions

We all want a comfortable retirement and pensions are one of the best ways of saving for this eventuality. The population is ageing and 2015 has seen some of the biggest and most radical changes to the private pensions industry in recent years with the introduction of the Government's 'pension freedom'.

Piggy bank money

Pension freedom

Traditionally, you were somewhat limited with what you could do with your pension pot. You could take 25% of it as a tax-free lump sum and then most people invested the remainder in what was called an annuity, a product that pays an income each year until the end of your life.

The Chancellor's announcement in the 2014 budget changed all that. Now, anyone over the age of 55 has almost complete control over what they do with their pension and, should they wish, are able to take their entire pension pot as a lump sum, paying no tax on the first 25%, and the remainder being taxed as if it were a salary at their income tax rate.

Do the changes affect all types of pension?

No. They do not affect:

  • The state pension
  • Defined benefit pensions (also known as final salary schemes), although people in the private sector or in a funded public sector scheme will still be able to transfer from a defined benefit pension scheme to a defined contribution scheme if they wish to, meaning they can benefit from the changes.

The types of pension that the latest reforms affect are what are known as defined contribution pensions, also known as money purchase schemes. These are the schemes where you and/or your employer saved money on a regular basis in a 'pension pot' for your retirement. However, as well as more freedom for you to do with your pension pot as you wish, pension freedom has also given fraudsters more opportunity to get their hands on your pension.

2. The rise of pension scams and fraudsters

The Government’s pension reforms haven't just meant more freedom for people to do whatever they want with their pension pot. This flexibility has led to the rise of a more negative issue, fraudsters. Under the previous rules, it was much more difficult for criminals to get their hands on someone's pension pot. Fraudsters were forced to set up fake pension schemes into which they would then have to try and persuade people to transfer their money. But with the new pension freedom reforms, whilst people now have easy access to their pension savings that, in turn, makes those savings easier to access by fraudsters.

Pension jar

What types of pension fraud are there?

There are a number of ways that scam artists will try and relieve you of your pension pot.

The free pension review

This is one of the most popular scams and one of the most successful due to the beneficial and harmless sounding nature of their offering. Customers are contacted on the doorstep, by telephone, text or email and are offered a free pension review. This, of course, isn't a review at all…

Read more about the free pension review scam below.

The one-off investment opportunity

The last few years have been relatively poor for savers, with interest rates remaining low. Everyone wants to maximise their pension pot and it is this desire upon which this scam relies.

Read more about one-off investment scams below.

Pension liberation

This type of scam typically targets those savers under the age of 55 and is also known as a pension loan, early pension release or simply cashing in your pension early. Unlike the other scams, pension liberation is completely legal but is almost certainly never a good idea…

Read more about pension liberation scams below.

Take a look at our in-depth guides of each type of pension scam and then take a look at our 'Pension scam warning signs' page and our 'How to protect yourself from pension scams' advice page.

3. Pension liberation

Whilst the free pension review and one-off investment scams are out-and-out frauds and almost always illegal, pension liberation can actually be a perfectly legal and legitimate financial tactic. However, because of its nature, it is almost never a good investment idea and should not be thought of as any less of a scam than other tactics used by fraudsters.

Contact

How do they contact you?

Pensions liberation companies may use a variety of methods to contact you.

On the doorstep: This is not generally the way that most pension liberation companies will contact people, as there are far more targeted and effective methods that they can use. However, you should still always remain extremely wary of anyone selling or offering financial services on the doorstep.

By telephone: This is the most widely used method of communication by companies offering pension liberation services. Because they are generally targeting people below the age of 55 who may be experiencing financial difficulties, there is a ready supply of leads available from companies who offer debt management and other related services that target those in financial difficulties. If you are under 55 and have ever had contact with this type of company and did not explicitly tick or untick the box preventing your number from being passed on, then you could very well be contacted by a pension liberation company.

By text: This is another common method of contacting people who might be interested in pension liberation your number will have been obtained from a debt management agency or a provider of telephone data.

What is the scam?

This type of scam typically targets those savers under the age of 55, and is also known as a pension loan, early pension release or cashing in your pension early. Even with the latest reforms, savers still cannot take their pension pot without penalties until the age of 55. That means the offer of being able to take money out BEFORE this can be very attractive to some people, especially if they are in financial difficulties. Pension liberation is legal but is almost certainly not a good idea in almost every situation. Whilst taking up to 25% of your pension over the age of 55 is completely tax free, taking money out of your pension earlier than this age is classed as an 'unauthorised payment'. That means you can be liable for up to a huge 55% rate of tax on the withdrawal, as well as charges from the pension liberation company of up to 30%.

How to protect yourself

Do not think that because pension liberation is perfectly legal that this means it is a good idea; it almost always won't be and you will find yourself financially worse off. Just because a company is registered in the UK and has glossy marketing materials, it does not always make it a legitimate and sensible financial proposition.

Do not sign or agree to anything before speaking to an independent financial advisor or other independent professional who can advise you on such matters.

4. The free pension review

The free pension review scam is one of the most popular scams and one of the most successful due to the beneficial and harmless sounding nature of their offering.

Review stars

How do they contact you?

You can be contacted in a number of ways:

On the doorstep: The most direct method where you will open the door to be confronted by someone offering to review your pension arrangements in the comfort of your own home. Very often they will have very convincing identification and will be smartly dressed with authentic looking documentation.

By telephone: The most common method of communication. If you've ever failed to tick or untick the correct box on a form to state that you do not wish to be contacted by third parties, your data could have been bought by any number of companies, both reputable and not so reputable. You may be told they are calling from your current pension provider or that they are calling from some sort of official body.

By text: As mentioned earlier, you may have inadvertently let your telephone number fall into the hands of scammers. You may receive a text offering a free pension review and, should you reply, you may then be called by one of the fraudsters.

What is the scam?

The scam is to 'review' your pension. They may make various claims, such as making sure it is the right pension for you, ensuring you will receive the maximum amount of money from your pot or making sure your money is safely invested and is not at risk of reducing in value. Of course, it isn't a review at all,and you will be encouraged to move your pension pot into a 'more lucrative investment vehicle' with the promise of high returns and/or greater safety for your money.

How to protect yourself

You should be wary of anybody offering a service such as this. Go to our dedicated section, 'How to report pension scams' for full details of how to protect yourself but, in brief:

  • Do not give out any personal information.
  • Ask if they are a member of the Financial Conduct Authority and check on the FCA website: www.fca.org.uk/register. However, don't assume that the person you are talking to is the person on the register.
  • If they say they are from an official body such as The Pensions Regulator, they are not being truthful as official bodies such as this do not offer this kind of service and do not conduct themselves in this manner.
  • Do not sign or do anything until you have taken advice from a trusted professional advisor.

Do not sign or agree to anything before speaking to an independent financial advisor or other independent professional who can advise you on such matters.

5. The one-off investment scam

The one-off investment opportunity scam plays on the fact that the last few years have seen relatively low interest rates and returns for both savers and investors.

Investment

How do they contact you?

As with many other pension scams, you can be contacted in a number of ways.

On the doorstep: With a smart appearance and with convincing identification and information, the one-off investment opportunity is a scam that relies on high pressure sales tactics, so is particularly suited to door-to-door prospecting.

By telephone: Fraudsters will always have ways and means to get hold of telephone numbers, so do not assume that, because you always tick or untick the box that says you do not want your number passed on, any call you receive is always genuine. There are numerous unscrupulous companies willing to pass on your details regardless of whether they have your permission or not. You may be called numerous times by the fraudsters who will use high pressure sales tactics.

By text: You may be contacted by text and, should you reply, this will open the doors for them to bombard you with calls to try and relieve you of your pension.

What is the scam?

Over the past few years, many people have seen poor returns from their pension investments, due to the global financial crunch and other factors that have resulted in poor growth for many pension pots. In this scam, fraudsters talk up the poor growth of many pension investments whilst encouraging you to transfer your pension pot into a more lucrative investment vehicle. The returns are often said to be 'guaranteed' and are way above the level of growth almost any other investment can offer.

These investments are often based overseas and are almost certainly not regulated in any way. The worst case scenario is that you will lose your entire pension pot because the investment does not actually exist. The best case scenario is that the investment vehicle does exist but you will almost certainly not get anywhere like the returns promised. In fact, you will probably get less than if you had left it in your original pension pot, as it may be poorly managed and will almost certainly have excessive fees and charges.

How to protect yourself

If the investment returns promised sound too good be true, they probably are! Go to our dedicated section, 'Think your pension is being targeted by fraudsters? What you need to do' for full details of how to protect yourself, but in brief:

  • Do not give out any personal information.
  • Ask if they are a member of the Financial Conduct Authority and check on the FCA website: www.fca.org.uk/register. However, don't assume that the person you are talking to is the person on the register.
  • If they say they are from an official body such as The Pensions Regulator, they are not being truthful as official bodies such as this do not offer this kind of service and do not conduct themselves in this manner.
  • Do not sign or do anything until you have taken advice from a trusted professional.

6. Pension scam warning signs

As time goes on, fraudsters and their methods are becoming more and more sophisticated, which means it can be increasingly difficult to tell the difference between a genuine financial offering and a scam. However, there are some tell-tale signs that can help you spot if what you are being offered is a scam.

Warning

Being cold-called - If you have been contacted door-to-door, by telephone or by text message, completely out of the blue then you should be wary. It does not necessarily mean that it is a scam but these are the ways that pension fraudsters will get in touch with you.

Pressure - If you are being pressured into making a decision about your pension then you should be aware that you may be being scammed. Reputable advisors and companies are bound by a professional code of conduct and would never use such tactics.

Unclear contact details - If the contact details you have been given are only a website or just a mobile number or PO Box then you should be proceed with caution. If you are given a physical address, google it; you may find that it is a 'virtual' office address, another favourite tactic of fraudsters.

By telephone: Fraudsters will always have ways and means to get hold of telephone numbers, so do not assume that, because you always tick or untick the box that says you do not want your number passed on, any call you receive is always genuine. There are numerous unscrupulous companies willing to pass on your details regardless of whether they have your permission or not. You may be called numerous times by the fraudsters who will use high pressure sales tactics.

By text: You may be contacted by text and, should you reply, this will open the doors for them to bombard you with calls to try and relieve you of your pension.

What is the scam?

Over the past few years, many people have seen poor returns from their pension investments, due to the global financial crunch and other factors that have resulted in poor growth for many pension pots. In this scam, fraudsters talk up the poor growth of many pension investments whilst encouraging you to transfer your pension pot into a more lucrative investment vehicle. The returns are often said to be 'guaranteed' and are way above the level of growth almost any other investment can offer.

These investments are often based overseas and are almost certainly not regulated in any way. The worst case scenario is that you will lose your entire pension pot because the investment does not actually exist. The best case scenario is that the investment vehicle does exist but you will almost certainly not get anywhere like the returns promised. In fact, you will probably get less than if you had left it in your original pension pot, as it may be poorly managed and will almost certainly have excessive fees and charges.

How to protect yourself

If the investment returns promised sound too good be true, they probably are! Go to our dedicated section, 'Think your pension is being targeted by fraudsters? What you need to do' for full details of how to protect yourself, but in brief:

  • Do not give out any personal information.
  • Ask if they are a member of the Financial Conduct Authority and check on the FCA website: www.fca.org.uk/register. However, don't assume that the person you are talking to is the person on the register.
  • If they say they are from an official body such as The Pensions Regulator, they are not being truthful as official bodies such as this do not offer this kind of service and do not conduct themselves in this manner.
  • Do not sign or do anything until you have taken advice from a trusted professional.

7. How to report pension scams

Act

Never sign or agree to anything if you are in any doubt about what is being presented to you.

Do not give in to pressure and get rushed into making a decision.

Ask and check if the company is registered with the FCA (Financial Conduct Authority). You can do this by calling 0800 111 6768 or go to www.fca.org.uk/register.

Even if the company is registered, there is no guarantee that the person you are speaking to is really from that company. To make sure, call the company back on the number registered with the Financial Conduct Authority.

If you think that you have been scammed, then you should contact the FCA Consumer Helpline on 0800 111 6768.

If you have lost money as part of a fraud, you should immediately call the Police's Action Fraud team on 0300 123 2040 or go to their website www.actionfraud.police.uk.

If you found this guide helpful, you may also find The Ultimate Guide to Online Fraud in the Workplace an interesting read. To see what other useful guides we have that are available on the Smart Pension website, click here.

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