Pension scams come in many shapes and sizes, all promising to convert your hard earned pension savings into cash before retirement. While HMRC is taking steps to deter scammers, thousands of people are affected each year, with 1 in 10 over 55s fearing they’ve been targeted by a pension scam since 2015.
Citizens Advice found that 10.9m consumers received unsolicited contact about their pension in the year following the 2015 pension freedoms, with as many as eight scam calls being received every second.
It’s likely pensions will continue to be an attractive target for fraudsters as the life savings of just one person can run into hundreds of thousands of pounds. That’s why it’s more important than ever to know the warning signs to watch out for and the steps you can take to protect yourself from a pension scam.
1. Pension liberation scams
Pension scams steal £1bn from savers https://t.co/AgGzdgjwgE— FTAdviser (@FTAdviser) 19 October 2017
Once you reach the minimum age of 55 you can access the money in your pension however you want. If you try to withdraw your pension any earlier you’ll have to pay a high tax bill, unless you can prove that you meet certain criteria such as a medical condition preventing you from working, or being medically advised that you have less than 12 months to live.
For most people this won’t apply and you won’t be eligible for early pension release, but pension liberation scammers will try to convince you that you can get access to your pension before 55 anyway. They’ll sometimes offer you cash incentives and might refer to it as a ‘pension loan’ or ‘saving advance’.
While it may be tempting to take up an offer like this, you should avoid anything related to pension liberation as it’s likely that you’re being asked to transfer your money into an unregulated scheme. You could end up losing your whole pension to a bad investment or fraud.
Many people who fall victim to pension liberation scams aren’t aware of the tax implications of withdrawing their savings early. If you access your pension before 55, HMRC will view this as an unauthorised payment and you’ll have to pay 55% tax on your withdrawal. Even if you lose your pension to a scam, HMRC will still charge you so you could end up losing 155% of your pension’s value (100% lost by the scam, 55% by the tax charge to HMRC).
2. Cold calling pension scams
Cold calling pension scams occur when someone contacts you out of the blue and tries to get you to move your pension savings into another investment. The scammer might offer a last-minute opportunity to invest in a luxury property development or an overseas deal and will say anything they can to get you to send them your pension.
Scammers might pressure you into making a fast decision and it’s not unheard of for documents to be couriered over for a signature straightaway. Cold calling pension scams don’t just happen on the phone, they can happen at every point of contact including text message, email, post and in person.
3. DWP scams
A common way for scammers to get in touch is via post, sending fraudulent letters from trusted companies such as banks and government bodies like HMRC or the Department for Work and Pensions (DWP). They’ll either ask you to provide updated bank details along with other personal information, or they’ll tell you that they’ve updated their bank details and you should arrange for all of your payments to go to the new account.
Police warning over scam letter sent to Teesside address claiming to be from the DWP - Gazette Live https://t.co/LYYwfxrzME— Samuel Miller (@Hephaestus7) 25 September 2017
Last autumn Middlesbrough residents received official looking letters claiming to be from the DWP, asking them to confirm their bank details. The letters were found to be fraudulent after a resident googled the phone number on the letter.
4. Annuity scams
An annuity is a product that you can buy with your pension to guarantee an income for the rest of your life. Scammers often target those looking to buy an annuity and try to convince them to buy products at an inflated cost or that aren’t suitable for their financial circumstances.
They may target older savers who have poor health or who are losing their memory, and are therefore more vulnerable. Sometimes annuity scammers might promise a cash incentive or signing bonus to try and convince you to sign. They might also claim that the deal is only valid for one day.
How to protect yourself from a pension scam
Pension scams are becoming increasingly sophisticated and it can sometimes be hard to spot one until it’s too late. Here are six things you can do to protect your pension savings.
Keep your pension details to yourself
Whether you’re approached by phone call, text message, email or letter, don’t share any details about your pension with anyone you don’t know. Even if they appear to know specific details about your pension, don’t drop your guard.
If a friend or family member asks you about your pension, you can relax a little bit but it’s never a good idea to share sensitive information or passwords with anyone.
Don’t be fooled by clever use of language
Some pension scammers will use phrases like ‘pension liberation’, ‘saving advance’, ‘pension loan’, and ‘cashback’ to trick you. ‘Legal loopholes’ are often cited as a way to get access to your pension before 55, but no such thing exists. You should also be mindful of anyone offering a ‘free pension review’ or someone who neglects to mention how much it will cost to withdraw your pension.
Avoid anything that sounds too good to be true
Whether you’re the one looking for help and advice or are contacted out of the blue, you should avoid any firm who offers cash incentives or tax-free access to your pension. Never click on links to websites and social media profiles offering easy access to your pension savings without checking their credentials.
Always read the small print and ensure there are no hidden fees or clauses that will cost you more money in the long run. In general, if the sales pitch seems too good to be true, it’s probably a scam.
Contact your pension provider
If you’re unsure about something that someone’s telling you about your pension, always contact your pension provider and ask for confirmation. Depending on what it is that you’ve been told, your pension provider should be best placed to provide you with more information. You should also let your pension provider know if someone has contacted you out of the blue, but knows sensitive information about your pension savings.
Check the Financial Conduct Authority register
If anyone offers you financial advice or claims they can help you with your pension, it’s a good idea to check the Financial Conduct Authority register and confirm that they’re authorised to provide financial advice. It’s not a good sign if you can’t find them on the register, but you may want to also check the Financial Conduct Authority Warning List which highlights firms you should avoid.
Report any concerns to the Financial Conduct Authority and Action Fraud
If you’ve been approached about early pension release out of the blue, and the firm isn’t on the Financial Conduct Authority register, you should report it so the Financial Conduct Authority can investigate. You can report anything suspicious by calling the consumer helpline on 0800 111 6768 or via the Financial Conduct Authority website.
If you’ve already agreed to something that you’re having second thoughts about, contact your pension provider straight away. If your savings are still in your account they may be able to prevent any pending transfers from going ahead. You should also call Action Fraud on 0300 123 2040 or visit the Action Fraud website to report the crime. The Money Advive Service has also put together a handy guide on spotting scams, and how to get help.