Pension scams: common scams and how to stay safe

Here are some common tactics used by criminals and how you can keep your hard-earned nest egg safe.

Pension scams can have a devastating financial impact on its victims.

Action Fraud revealed that the average amount lost to such scams had doubled over the space of a year, from £23,689 in 2020 to £50,949 in 2021.

Speaking at the time, Pauline Smith, head of Action Fraud, said: “Criminals are malicious and unapologetic when it comes to committing pension fraud.

"They are motivated by their own financial gain and lack any kind of empathy for their victims, who can often lose their whole life savings to these scams.

“We know pension fraud can have a devastating impact, both financially and emotionally, but any one of us can fall victim to a fraud and it’s nothing to feel ashamed or embarrassed about.

"It’s incredibly important that instances of pension fraud, and attempted scams, are reported to Action Fraud.

"Every report helps police get that bit closer to the people committing these awful crimes. Reporting to Action Fraud also allows our specialist victim-support advocates to provide people with important protection advice and signpost them to local support services."

So how can you stay safe? It helps to be aware of how a scammer is likely to target you.

A while back, the Financial Conduct Authority and the Pension Regulator surveyed a section of 45- to 65-year olds to find out how likely they were to respond to various types of investment offers and opportunities often associated with pension scams.

Below is a look at six common tactics scammers use, and how likely we are to fall for them, according to the regulator's survey.

Six ways a scammer will target you

1. Guaranteed hefty returns on your pension cash

Around one in eight (13%) 45-65-year-old's would pursue an offer guaranteeing returns of 11% on their pension savings.

2. Cold calls

Almost a quarter (23%) would engage with a cold call from a company asking to discuss their pensions plans.

3. Exotic investment opportunities

A similar number (23%) would pursue an offer of high returns in either overseas properties, renewable energy bonds, forestry, storage units or biofuels – even though these are high-risk investments and unlikely to be suitable for pensions savings.

4. Early access to your pension pot

Some 17% of 45-65-year-old pensions savers would be interested in a company that offered early access to their pension pot.

5. Free pension review 

One in 10 (10%) would say yes to a free pension review from a firm they had never dealt with before.

6. Time-limited investments

Finally, 7% of pensions savers in this age group would say yes to a company that claimed to have a special deal that wouldn't be around for long.

Pension scams extremely costly

The fact that millions of us could fall for a scam is extremely worrying – especially when you factor in the huge sums of money that could be lost.

An earlier Action Fraud report found that a typical pension scam victim lost £91,000, with some losing more than £1 million.

Pension freedoms attract pension scammers

While pension freedoms have been a revelation in terms of how we manage our finances in retirement, sadly they've also triggered a boom in pension fraudsters as a result of the huge sums of money involved.

As such, it's vital you learn to spot the telltale signs that you're communicating with a conman before your retirement savings pot is wiped out.

Here are the steps you can take to stay one step ahead of the crooks.

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1. Hang up on cold callers

Many pension scams start with an out-of-the-blue phone call (or mail or text), often offering you a free pension review.

Do not respond to these approaches: the Government has banned all forms of pension cold calls unless you have expressly asked a firm to contact you.

While the ban isn't going to stop unscrupulous firms or outright criminals from contacting you, it does mean you can feel confident that the person on the other end of the line isn't worth talking to and simply hang up (or delete the mail/text).

If you want advice about your pension or a review, you should contact Pension Wise, Citizen’s Advice, or make an appointment with an Independent Financial Advisor – just be careful what you pay for.

2. Check everything

A lot of people have fallen victim to a scam because it was ‘recommended by a friend’.

Don’t rely on a friend’s tips do your own homework to make sure it is above board.

3. Check up on your financial adviser

Criminals will pose as financial advisers in order to part you from your savings.

Before you discuss your finances with an adviser make sure they are registered with the Financial Conduct Authority (FCA).

4. Keep an eye out for scam buzzwords

Scammers tend to use a number of known 'red light' words.

Be wary of anyone who mentions "time-limited offers", "one-off investments", "cashback", "pension liberation" or "loopholes".

5. Check if it’s a known scam

Visit the FCA’s Scamsmart website to check if the deal you are being offered is on its list of known scams.

The Pensions Advisory Service (TPAS) also has an online pension scam guidance tool that can help you work out whether an investment is legitimate.  

6. Be wary of overseas investment deals

A well-known scam is to convince you to move your pension into an unregulated overseas investment such as a hotel, vineyard or overseas building project.

This puts all your money in one place and therefore most at risk. Never agree to invest your money overseas in unregulated projects.

7. Don’t fall for ‘guaranteed’ returns or fancy websites

There is no such thing as a guaranteed return when it comes to investments.

Don’t assume something is credible just because it looks flashy with impressive brochures or websites – these days anyone can pull together a smart website or paperwork.

Make sure you question everything – no matter how credible it may seem.

8. Don’t be rushed

Scammers will try to pressure you into making a mistake by telling you the offer is time-limited or by sending a courier to your door to wait while you sign documents.

Don’t be pressured, take your time to check everything even if it means you have to turn down the deal.

9. Report potential scams

If you think you may have been the victim of a scam, or have been contacted by scammers, report it to your pension provider and the police via Action Fraud.

Contact your pension provider immediately as they may be able to stop a transfer if it hasn’t taken place yet. You can call Action Fraud on 0300 123 2040.