How to avoid a pension scam

Mathilda Volant

by , Team PensionBee

at PensionBee

14 June 2022 /  

June 2022

Couple check mobile phone over cake and hot beverages.

In the year to March 2021, 4.6 million cases of fraud were reported, according to the Crime Survey for England and Wales (CSEW). Compared to the previous year, burglaries were down 30% whereas fraud was up 24% - reminding us that in this modern digital age our details are often more desirable to scammers than our belongings.

Online scams can vary from clicking links which download viruses that lock or steal your information, to an elaborate online dating manipulation to scam you out of thousands. One common misconception is that scammers are only attempting to access your bank account.

Pensions are often people’s second largest financial asset, aside from their home, which means they are also targeted. Some of these fraudsters impersonate pensioners to access their account, or pressure them to transfer to an unregulated scheme where the money can be stolen from.

Beyond the risk to your wealth, there’s also the damage scams pose to your mental health. In fact the impact of fraud on victims’ wellbeing is estimated to amount to £9.3 billion. Keep reading to find out what some of these scams look like and how best to avoid them and stay safe from fraud.

What’s a scam?

Scams are an illegal and dishonest plot to steal from, or commit fraud against, the victim. Anyone could become the target of a scammer. In fact it’s quite likely you’ve evaded several attempts already - perhaps by hanging up on a cold call or ignoring a scammer’s text or suspicious email.

A common method that scammers use is ‘phishing’. This is a cybercrime which targets people by calling, emailing, or texting them posing as an organisation - often a financial institution. In answering their questions you may reveal your personal details. With this information scammers can attempt to access your accounts and commit fraud.

Who are the victims of scams?

In short, everyone is a potential victim. Different fraudsters will take various approaches to persuade victims to part with their money. Polling by Citizens Advice found 73% of over 55s compared to 57% of under 34s were contacted by a scammer in 2021.

Some scams, such as texts are low effort and are often mass sent. However, many sophisticated scams target victims that are perceived to be more susceptible to deception (those less technology confident) or have more available money (retired people).

What types of scams are there?

Billy Gazard, of the Office for National Statistics Centre for Crime and Justice, commented: “The coronavirus pandemic has had a significant impact on patterns of crime. There were large decreases in theft offences, such as domestic burglary… At the same time, there were substantial increases in fraud and computer misuse offences such as hacking”.

Most scams begin with an out of the blue communication: an email, a letter, a phone call, a text message. As we learn to protect ourselves from scams, these criminals become more sophisticated in their efforts to dodge our security measures.

What do pension scams look like?

There are three common types of pension scams to watch out for:

1. Annuity scams

Annuities are products that pay you a guaranteed income for a fixed period or life. Scammers may 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 them. Sometimes annuity scammers might promise a cash incentive or signing bonus to try and convince you to sign.

2. Liberation scams

Pension liberation (also called ‘pension freedom’) is normally linked to fraud and accessing pension benefits early. Scammers may promise to help you ‘liberate’ your pension without penalty using tax loopholes. They’re lying! You’ll be charged a substantial amount of tax (up to 55%) if you make an unauthorised early withdrawal from your pension.

Scammers may try to transfer your pension to an unregulated scheme. In exchange for this alleged ‘early release’ they’ll likely charge an extortionate commision, perhaps as much as 30% of your pension. Pension liberation risks you losing all of your savings through commissions for fraudulent investment products and tax penalties.

3. Review scams

Free pension reviews are available from Pension Wise if you’re over 50 years old. Scammers may claim to be from an authorised agency offering a free pension review. Often these plots are designed to trick those approaching retirement to transfer their money into a high-risk scheme. Sometimes they’re advertised as unusual investments that could yield above average returns, but without proper diversification and regulation they often fail.

How to spot a scam

If it sounds too good to be true, it probably is. Familiarising yourself with what scams look like may stop you falling for one. Knowledge is power, and learning about a scammer’s tactics is one of the best ways to protect yourself. Here’s some useful tips for what to look out for:

Suspicious messages

Often these fraudulent messages come out of the blue and our first instinct is to open and reply to them. In doing this we play right into the scammer’s hands. The most dangerous thing we can do is to act before we think.

If you receive a suspicious text you can forward it to Ofcom (7726) to report it as spam. You can select suspicious emails (without opening them) and report them as phishing in your email settings. And by not continuing to engage in suspicious calls or disposing of suspicious letters you can improve your chances of evading even a sophisticated scam.

Payment methods you’ve not heard of

As fraud is a criminal activity, scammers may ask you to pay them through unusual methods. This is because your bank or building society have systems designed to spot suspicious activity. Methods vary from victims buying gift cards that scammers can redeem to paying in cryptocurrencies that are hard to trace back to the culprit.

When you’re being asked to make payments and it’s not a legitimate method, think twice. If your bank account is hacked then by making a claim you may be able to retrieve some or all of your stolen money. However, making cash withdrawals and paying through these unusual methods makes it harder to find the culprit and recover your money.

Pretending to be authorised

Not all scams are so easy to spot though. And you may be tempted to reply to correspondence because it comes from a recognised source: a letter from HMRC, a social media message from a friend, even a text from your bank. A good step is to fact check those details.

Scammers will often pose as reputable businesses or trusted people to gain access to our accounts. Does the email address provided match the one found online? Or the phone number? You can avoid these scams by doing some due diligence and checking the details before acting.

Poor spelling and grammar

To hide their real identity scammers will use big brand names with small typos. For example looks like a PensionBee website address but on close inspection it isn’t. Scammers use these tactics to convince us they’re trustworthy.

Scam messages are frequently misspelt or phrased awkwardly. Looking at the spelling and grammar can give you key clues to whether it’s an official message or not.

Personal information requests

Scammers may ask simple questions to gain enough knowledge to commit fraud: your address, phone number, or birthday could all be used to break into your bank account. Even clicking on a rogue link could intercept your saved information.

You can protect yourself by considering whether the answers to their questions are confidential. Scammers will often employ scare tactics or pressure you to act rashly. Just remember to keep your bank details and personal information private.

Support if you’ve been the victim of a scam

Even an attempted scam can feel scary. Remember you’re not alone. Figuring out your next steps after being scammed is straightforward. If you think you’ve been scammed please act quickly and reach out for support from a trusted agency or charity:

  • Start by contacting Action Fraud to report actual or attempted fraud, they’ll advise you on the next steps and talk you through the process
  • Get in touch with your bank or financial company to stop further fraud. If you’ve already started a payment then act quickly to cancel it
  • Assess where the breach occurred and update your details (such as passwords) to secure your account from future attacks
  • Following contacting relevant agencies and securing your accounts, you may have found this experience stressful, you may find emotional support helpful.

Back in 2020, PensionBee teamed up with three other “pentechs” to create Scam Man & Robbin’, a five-minute arcade game that educates consumers about pension scams by casting the player in the role of ‘Scam Man’, a vigilante whose main objective is to protect people’s pensions from scams!

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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