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How to avoid pension scams and to keep your pension safe

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Government figures show that almost 11 million pensioners are targeted with cold calls every year and that those who’ve been scammed have lost millions. Here’s how to avoid pension scams and to keep your pension safe.

How to avoid pension scams

There are lots of ways that pension scams can work. However, many fraudsters rely on a few tried and trusted scams. The financial regulator, the Financial Conduct Authority, says that scammers may offer you:

  • A free pension review – they may claim they are authorised financial advisers or say that they are from the government-funded agency Pension Wise.
  • Better returns – they may promise that you could do better if you switched your pension to another provider. This is a tempting one, but higher returns are something that it’s very easy to promise but much harder to deliver than you think.
  • Cash from your pension before you are 55. You have to be 55 before you can take money out of your pension. The only exception is if you are terminally ill and have less than a year to live.
  • The chance to invest in more unusual investments. This can be anything from car parking spaces, storage units, cryptocurrency and forests. It’s not necessarily the case that the investment is fraudulent (although it may be), but it could be very risky. On top of that, there could be very high fees to pay.

How much you could lose:

New research (November 8th) by the Financial Conduct Authority shows that the average amount that’s stolen from each pension scam victim is £82,000. It’s an extraordinary amount, and, according to the FCA, it would take someone 22 years – on average – to build this amount up.

How scammers may target you

Scammers are successful because they’re plausible. They will find out as much information as they can about you to gain your trust.  The scammers may know:

  • Your name and age; this may be easy to find out if you’re active on social media. Some people put their date of birth in their social media profile or post about their birthday on Facebook. Others incorporate it into their Twitter name.
  • The company you work for and whether there’s been a major change there. This could include a wave of redundancies or the closure of a particular office or branch;
  • Your pension scheme provider or some information about the pension. This could include whether there’s been an announcement that the pension scheme will change or be closed.

SAVVY TIP: The scammer/fraudster may have got your information from a range of online sources. These could include LinkedIn – your own personal page and/or group pages from the company you work for. They also get data from social media sites such as Facebook and Twitter. If you’ve posted your CV on a job site, they may take information.  Even if you’ve not posted this information, someone else may have done so. It’s worth Googling yourself and/or checking what’s readily accessible online.

Personal information is so valuable to a fraudster because it’s easier for them to get your trust if they appear informed. Be on your guard.

The ‘free government pensions review’ scam

This is one of the most plausible sounding pension scams currently doing the rounds. If someone rings you up and says you qualify for a free pensions review, put the phone down. The only exception is if it’s your existing financial adviser and you have invested your pension through them.

If you have a pension ‘pot’ type of pension and can make use of the ‘pension freedoms’ introduced in April 2015, you’re entitled to some free guidance from a government-funded service called Pension Wise. You can read more in my article called  How will the government’s Pension Wise service work?

The free review in itself isn’t the scam. But if you agree to a review after a cold call, you’ll be told that your pension isn’t performing very well and you should transfer it. At best, your pension could be transferred into a fund with high fees and at worst you could lose the lot if the firm disappears.

SAVVY TIP: Pension Wise will never, ever cold call you. You have to make the first contact if you want your free guidance. If someone says or implies they’re from a ‘pensions review’ or ‘government review’ service, and they’ve cold called you, they aren’t.

The ‘better returns’ scam

Be very wary if a company calls you out of the blue offering you better returns if you move your pension. They may sound plausible and may even use the name of a genuine financial adviser. However, that needn’t necessarily mean anything. It’s one of the most used pension scams. The Financial Conduct Authority has warned about ‘cloned’ financial companies, where rogues assume the identity of genuine financial advisers or asset companies. You can read the FCA’s warnings about cloned and unauthorised firms on its website.

If you’re contacted by a cloned company, you may think you’re dealing with a genuine firm that’s been authorised, but you won’t be.

Even if the firm hasn’t been cloned, I’d still be very wary about making any financial decision on the basis of a cold call. Investment firms aren’t allowed to cold call anyway, so my advice is to put the phone down.

The ‘tangible investment’ scam

This is an argument that might sound attractive. The idea is that you invest in something tangible rather than shares. Let’s face it, shares aren’t exactly , but I’m afraid it can be used by unscrupulous companies to try and get you to part with your money.

A number of companies are advising people to invest their pension money in unusual investments, such as forests, overseas property, car parking bays, self storage units and bamboo plantations.

SAVVY TIP: Be aware that these investments are generally not regulated. That means if you’re advised to put your money into them and you turn out to have been given bad advice or the firm goes bust, you may not have the same access to official redress or compensation schemes.

Transferring your final salary pension

This isn’t necessarily a scam. But in many cases, transferring a final salary pension to a pension ‘fund’ is a really bad move. There are some situations when it may make sense, but you will generally be giving up very valuable benefits by transferring. These could include having a guaranteed income which will normally rise with inflation and your husband, wife or civil partner getting a pension when you die.

SAVVY TIP: The biggest risk is that you are giving up a guaranteed pension income for one where the amount you will be able to take in income is not guaranteed. If you can afford to take that risk because you have lots of guaranteed pension income from other pensions, it may (and I emphasise ‘may’) be worth exploring. But if you need to have a regular income month in, month out and you don’t have enough money from other pensions to live on, transferring your final salary pension is probably rather too risky.

I would recommend contacting the Pensions Advisory Service by phone and explaining your situation and what you’ve been advised to do. They are not financial advisers but are a free advice and information service set up by the government. You can ring them on 0300 123 1047.

A scam or a genuine call?

I think there are three warning signs that it’s likely to be a scam.

  • The first thing is that if they are cold calling you. It’s been illegal for companies to cold call or ‘cold email’ you about pensions since the start of 2019. If a company cold calls you, it’s breaking the law.
  • Secondly, if you’re being offered a free review but very quickly they try and sell you something or get you to transfer your pension to them.
  • Thirdly, if they don’t warn you about the downsides or seem very interested in what you could be giving up, or spell out the fees.

What to do if you think you’ve been scammed

If you haven’t yet acted on the information you’ve been given, contact the Pensions Advisory Service on 0300 123 1047 and check it out with them. They will definitely be able to tell you whether what you’re being encouraged to do is a scam. If you’ve already transferred your pension, contact Action Fraud.

If you want to read more about pension scams, there’s information on the FCA’s Scamsmart website.

Related articles:

Binary options trading scams

How to avoid investment scams

How does the government’s Pension Wise guidance service work?

What to do before you take money out of your pension

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