Pension scams and how to avoid them

16/09/2019

You might have seen Bob’s warning on the television yourself.

In his late 50s, Bob received a phone call out of the blue that offered him a free pension review. The adviser seemed knowledgeable and professional, and his offer proved attractive enough to sign on the dotted line. “Just shy of 40 years’ pension; he took all of it” Bob warns us.

Glossary

For explanations of the investment terms used throughout this article.

View the glossary

Pension reviews are one of the most common forms of scam and are on the rise in the UK, the Money Advice Service has warned. According to the Financial Conduct Authority (FCA), victims of pension scammers lost an average of £91,000 last year.

We might all think that we wouldn’t fall for such tricks, but scams can be very sophisticated and deceive even the savvy among us. Research from the FCA and the Pensions Regulator suggests that 42% of pension savers could be at risk of falling for common tactics used by scammers.

By familiarising yourself with some of their tactics, though, you can avoid becoming a victim.

What should raise suspicions

Alarm bells should start ringing if you are approached unexpectedly, whether by phone call, text message, email, or a knock on your door. Cold calling is illegal, so you should never be contacted by any company or individual about your pension, unless you have invited them to do so. 

Any invitation of a free pension review warrants the utmost suspicion. After all, you should expect to pay for any professional financial advice that is independent – and that is probably worth having.

When it comes to the proposals themselves, watch out for any promises of high returns. As with any investment, we know that returns can never be guaranteed. Anything that looks or feels unusually attractive should be treated with extreme caution.

From the age of 55, you have a range of choices about what to do with your pension pot. Scammers often peddle schemes to those approaching retirement that involve unusual investments, such as cryptocurrencies, foreign exchange trading and binary options (which are a form of fixed-odds betting). Setting aside the often dubious merits of obscure investments like these, which typically carry high risks of financial loss, they are frequently touted by crooks.

Finally, it goes without saying that high pressure sales tactics should also raise red flags. A bona fide financial adviser would never rush you into an important life decision. If you are being pressured, whether through a time-limited offer or by a courier being sent to hurry away your signed paperwork, consider why there would be any need for such urgency.

How to keep savings safe

Fortunately, there are a few simple steps you can take to stop scammers in their tracks and avoid putting your hard-earned savings in peril.

The Money Advice Service encourages you to follow these simple rules:

  1. Reject any unsolicited communications. Even if the person on the other end of the phone knows your name and other details about you, never assume they are genuine. A legitimate adviser would never break the law by contacting you out of the blue.

    If you receive a cold call about your pension, get any information you can, such as the company name or phone number, and report it to the Information Commissioner’s Office via their website or on 0303 123 1113.
  2. Check the FCA register. The financial regulator keeps an up-to-date list of firms that are authorised to offer financial services on its website. Bear in mind that some scammers have very convincing websites, which can make them look like a legitimate company.

    As well as checking that a company is authorised before making any investment, you should check the FCA’s warning list of firms to avoid dealing with. 
  3. Seek impartial advice. If you’re thinking about what to do with your pension pot, and are possibly considering an investment, you are strongly advised to seek independent financial advice from an FCA-regulated firm or adviser. 

    Before you sign anything, you can call the Pensions Advisory Service on 0300 123 1047 for information and advice about pension scams.

With any luck, you will avoid the scourge of scammers. If you are targeted, though, hopefully you will know what to look out for and where you can turn for help, to ensure you do not follow in Bob’s footsteps.

The views expressed in this document should not be taken as a recommendation, advice or forecast.