Scams are set to be a greater risk to those who pay into a pension as the cost of living crisis continues.
The Pensions Regulator (TPR) are warn that scams are currently posing a greater risk to people who are struggling financially. Scammers could convince savers of an early pension access or higher investment and con them out of thousands of pounds.
Consumer champion site Which? warns that anyone could fall victim to a pension scam, no matter how 'money savvy' you think you are.
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Scammers are becoming more and more convincing and may appear to be a legitimate investment opportunity and could convince people to hand over their cash to be invested.
According to Action Fraud data from 2021, victims can lose more than £50,000 while The Police Foundation, estimates that £2.5tn of pension wealth in the UK is accessible to fraudsters. This is a huge target base for criminals.
As Which? reports, TPR has announced a new three-year strategy to crack down on these scams.
TPR wants to distinguish between pension fraud and 'practices which lead to savers' harm' while looking out for seven types of pension scams.
1. Investment fraud
Investment fraud will see scammers try to persuade you to transfer your entire pension savings, or a large sum of it. They will try to convince you it will lead to high returns and a great investment opportunity - but these don't often exist.
Which? warns: "If the money is invested, it tends to be in unusual high-risk investments such as overseas property, renewable energy bonds, forestry, storage units and parking."
2. Pension liberation
When you reach 55-years, you are allowed to take a tax-free lump sum from your pension due to pension freedom rules. You can withdraw 25 per cent if you have a defined contribution pension.
However, if you access these savings before you hit 55, you will receive a 55 per cent tax bill - and here's when the scammers pounce. They promise you can get early access through fake loans and loopholes.
These 'services' often are offered with fees of up to 30 per cent of what you're withdrawing and cold invest whatever's left into high-risk schemes.
You can only access your pension before 55 years if you are in poor health, or in an occupation that has early retirement ages.
3. Scam pension schemes and providers
Another scam pension savers should look out for is when the scammers tell you they can ‘guarantee better returns on pension savings’. They will usually use high-pressure sales tactics such as limited time offers.
These schemes and providers are set to deceive victims and are committing fraud.
4. Clone firms
As scammers seem to be getting smarter, they will pose as the real company and trick pension savers into sending money to the wrong place.
Action Fraud explains that these are set up by fraudsters using the name, address and Firm Reference Number of real companies authorised by the FCA.
The Financial Conduct Authority (FCA) has a warning list that includes unauthorised and cloned firms it has identified, along with fake firms' contact details, so you can make a note on who to avoid.
5. Claims management companies
While not all claim management companies are fake, TPF highlighted ones where cold calling practices are used.
It is illegal to cold call about pensions and is likely a sign of a scam. Now that tactics have changed, people may be targeted by social media.
If you are contacted by a scammer, you could be told you have been mis-sold a pension plan and then ask for a fee to begin a claims process.
If you are contacted out the blue, people are encouraged to hang up on cold calls and report them to the Information Commissioner's Office and ignore any unsolicited offers via email or text.
6. Employer-related investment
As Which? explains, while employer pension schemes are meant to operate in the best interests of the company's employees, a breach employer-related investment (ERI) restrictions can take place when employers divert employees' pension payments to invest in the business in an improper manner. This would then result to savers losing money.
If you have concerns about your workplace pension scheme, you can report it to The Pensions Regulator by emailing wb@tpr.gov.uk
7. High fees
TPR says it has identified cases where excessive pension fees are layered through unnecessarily complex business structures and will result in savers losing out on money that should instead be invested.
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