Comprehensive Guide on How to Spot a Pension Scam

Laura Broad[1]

Laura Broad

Money Savings Advice How to spot a pension scam

As most of us will find ourselves with a healthy pension pot by the time retirement comes around, pensions are unfortunately a popular target for scammers. The Office for National Statistics estimates that British people have up to £4.5 trillion tied up in private pensions - an attractive sum for fraudsters trying to scam people out of their hard-earned cash.

If a scammer gets to your pension savings before you do, you could be left with nothing. So what do you need to watch out for to keep scammers from enjoying your retirement?

This guide will look at what you need to know about how to spot a pension scam.

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What Is a Pension Scam?

A pension scam is where a scammer will try to get you to part with your pension cash by making misleading claims or guarantees about your pension for their gain. The scam typically will fall into one of the following four categories.

Liberation Scams

Liberation scams offer you access to your pension before the age of 55. The aim here is to get you to cash in your pension early and transfer it to an unauthorised account which the scammers can access. As an extra blow, these scams also result in large 55% tax bills as a penalty for accessing your pension early.

Investment Scams

Investment scams offer unusually high returns on your pension. They may advertise special investment opportunities, promising 10 or 15% return on your investment. The aim here is to get you to transfer your pension to an authorised account that scammers can access.

Advice Scams

Advice scams offer you ‘free’ pension advice. The aim here is to collect your personal information, either for the scammer to gain the authority to transfer a pension to their account or to act as a lead for other pension scams, usually investment scams.

Review Scams

Review scams offer you a ‘free’ review of your pension savings and investment returns. Like advice scams, the aim here is to gather your personal information with the view to pass you on to other pension scams or transfer your pension funds to the scammer’s account.

Pension Scam Warning Signs

Scammers will often feed their victims false promises of attractive returns or try to gain trust by offering free services to encourage unsuspecting savers to part with their pension pot. Some common pension scam tactics which you can look out for include:

Unsolicited, Out of the Blue Offers to Discuss Your Pension

Be wary of anyone who contacts you out of the blue - just because there was a ban on pension cold-calling in 2019 doesn’t mean scammers have stopped doing it. They may also try to appear more legitimate by claiming to be endorsed by trusted financial institutions such as the Department for Work and Pensions (DWP) - watch out for variations on this name too.

Early Access to Your Pension Pot

Scammers will target those under the age of 55 and claim they can help them to transfer their pension savings somewhere where they can access them early. The truth here is that this isn’t legally possible unless you’re seriously unwell or have a special pension scheme with agreed earlier retirement age. The money goes to the scammer’s account instead.

Exotic or Unusual Investment Opportunities

Pension scammers often tempt people in with offers of high returns on exotic investments such as overseas property or hotels, forestry, renewable energy bonds, storage units or carbon credits. The scammer might tell you these are low risk, but the truth is anything but. These types of investments are incredibly high risk and not suitable for pension savings.

A Guarantee of High Returns at Low Risk

Any promotion offering you over 8% return should be ringing alarm bells. Scammers might say a return is guaranteed or low risk, but the truth is likely the opposite. They might also suggest it would be best for you to put all of your pension money into a single investment, which is not recommended in the vast majority of cases.

A Time-Sensitive Offer That Can't-Wait

Creating a sense of urgency is a common scam tactic. Watch out for any firm offering a special deal that ‘won’t be around for long’ or trying to pressure you into making a quick decision. Another common tactic is offering to send documents to your door by courier.

The golden rule of spotting pension scams: If it seems too good to be true, it probably is.

Avoiding a Pension Scam

Once your pension pot is involved in a scam, it’s often too late. To avoid being caught out by any pension scams, remember to:

  1. Reject any out of the blue offers. If someone calls you up wanting to discuss your pension, the safest thing to do is hang up. If you get a text or an email, delete it. Be extra wary of anyone offering you free advice - pension advice is almost never free.
  1. Check who you’re dealing with. Always do your research. If a company doesn’t have a website or any contact details that aren’t a mobile phone number or a PO box, be wary. You can check the FCA’s register for firms that have been authorised. The FCA also has a warning list for firms known to be unauthorised. Working with an authorised firm means you will have no financial protection.
  1. Take your time. Don’t let yourself be rushed into making a decision you haven’t had a chance to investigate and understand fully. Any reputable firm will understand this and will not try to pressure you into taking action quickly.

Making any changes to your pension is a big deal. If you’re thinking of transferring your pension, it’s recommended that you speak to an FCA-regulated financial advisor.

What to Do if You Think You’ve Been a Victim of a Pension Scam

If you think you might’ve been targeted, report the scammer. You can use the FCA’s ScamSmart website as a starting point. If you’ve already signed something over or you suspect you’ve lost money to a pension investment scam, contact Action Fraud immediately.

If It Looks Too Good to Be True, It Probably Is!

Scammers and fraudsters prey on the fact that potential investment returns which “look too good to be true” often attract the attention of those with little experience of the markets. So, before you sign up for that great pension deal just take a step back and look at the situation from a distance.

Also, if you have no experience with investments and pension funds, then you should be taking advice every step of the way.

How Can You Claim Compensation for a Pension Scam?

It will depend on how you were enticed into the pension scam and what advice you are given. If for example, you answered an advert on the Internet or received a cold call, resulting in you making an investment decision, your protection is limited.

You may be able to pursue compensation through legal channels if the transaction was fraudulent, but very often the scammers will have disappeared long before the police arrive. So, what is the alternative?

Advice, Advice, Advice

If you are unsure about any investment decision, for example, who is behind the deal, why they have approached you and why the deal looks so good, you should take advice. Any pension fund adviser worth their salt will be able to spot a scam a mile away.

Unfortunately, we have seen some scenarios where pension fund advisers have been drawn into these scams, sometimes deliberately, sometimes inadvertently. However, once they advise their clients to go with a particular investment that turns out to be a scam/fraudulent, they may well be held liable.

Can You Claim Compensation From Your Pension Fund Adviser?

If your pension fund adviser introduced you to a particular investment and it turned out to be a scam/fraudulent or inappropriate for your situation, they leave themselves open to claims of negligence.

If you can claim negligence, then you can claim compensation for financial loss and sometimes pain and distress. You should only take advice from a regulated pension adviser because if there is any recourse as a consequence of inappropriate action, then you will also have the backing of the regulator.

Do You Need to Use a Claims Management Company?

One of the more common elements of pension fund fraud/scams is the fact that they tend to be very detailed and very well structured. The overall offer is designed to appeal to a certain type of investors; those who maybe have limited experience of investment markets.

As a consequence, whether you are suing the alleged fraudulent companies/scammers or your adviser, you will need to gather as much evidence as possible. Many financial claims management companies will have experience in this particular field with up to £4.5 trillion of pension funds in the UK alone.

Money Savings Advice Tip

If you feel you have been the victim of pension fraud and have lost out financially you could be entitled to compensation. Our tip is speak to a professional who can help you understand the process of claiming compensation and can look after the compensation process on your behalf.

How Much Does It Cost to Use a Claims Management Company?

Assuming that the claims management company believes you have a strong case for compensation, they will likely offer you a “no win no fee” arrangement. This will effectively indemnify you from any costs they incur when pursuing your claim.

However, as a reward for a successful claim, they will look to negotiate a “success fee” which would see them awarded a percentage of any compensation received. The average “success fee” tends to be around 25%, although it can vary significantly from case to case.

As these cases can sometimes be relatively complex, the “no win no fee” structure allows negligent third parties to be held to account and the appropriate compensation award secured.

How Can Money Savings Advice Help You With Making a Mis-Sold Pension Claim?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for a mis-sold pension and they can do the same for you.

Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.


Money Savings Advice Author Laura Broad

Laura Broad

Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.

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