Don’t let a scammer enjoy your retirement. Find out how pension scams work, how to avoid them, and what to do if you suspect a scam.
Pension scams often involve attractive offers that aim to persuade you to transfer your pension pot (or release funds from it). If you’re worried about money and want to use your pension to repay debts, contact a free debt adviser first to find out what your options are.
Pension scams often include:
• a guaranteed better return on your pension savings
• high-pressure sales tactics
• unusual investments, which tend to be unregulated and high risk
• complicated structures, so it isn’t clear where your money will end up
• several groups (some of which may be based overseas) all taking a fee, which means the total amount deducted from your pension is significant
Early pension release scams
You should be very wary of any scheme offering to help you release cash from your pension before you’re 55. It’s almost certainly a scam.
Generally, you can only take money from your pension when you’re 55 or older except in certain cases, such as poor health. This will increase to 57 from 2028.
How early pension release scams work
Offers to access your pension early may be called ‘pension liberation’ or a ‘pension loan’, as the scammers often claim you can borrow money from your pension fund. If you take up the offer, your pension funds will be transferred into a scheme set up by the scam, which will often be based abroad. You may be ‘loaned’ an amount (often around half of your pension), with the company involved taking a fee, perhaps as much as 30%.
You could also face a tax bill of 55% on what you withdraw, even if:
• you didn’t realise you’d broken the tax rules
• you put the money back in your pension
• you’ve paid fees or charges to the company involved
• you’ve spent all the money
Once you’ve paid the fees and tax, any money remaining will then be invested in high-risk products or projects, like overseas property developments. Sometimes it’s simply stolen outright.
Risks of accessing your pension early
Taking cash from your pension before you’re 55 is unlikely to be in your interests. If an FCA-authorised adviser recommends an early pension-release scheme, ask them to explain the full consequences and risks, and your other options. These schemes can be illegal if you’re not told – or are misled – about the tax you’ll pay and the risks of accessing your pension early.
Pension review scams
If you’re contacted unexpectedly and offered a free pension review, it’s likely to be a scam. Professional advice on pensions is not free. Most of the companies offering free pension reviews aren’t authorised, but many falsely claim they are. They may also claim that they don’t have to be authorised, as they aren’t providing the advice themselves. Some scammers may even say they’re acting on behalf of the FCA or MoneyHelper.
How pension review scams work
Free pension reviews are designed to persuade you to move money from your pension pot into a high-risk scheme. Your pension pot is then invested in unusual investments such as overseas property, forestry, storage units, care homes, biofuels or businesses you may not be familiar with.
You may be promised guaranteed returns or cash from your pension to tempt you to take up these offers. Some of these investments are badly run, while others are outright scams.
As they’re promoted as long-term pension investments, it could be several years before you realise something is wrong.
Protect yourself from pension scams
If you get a call out of the blue (a cold call) about your pension, the safest thing to do is hang up. It’s illegal and probably a scam. If you get offers via email or text, you should simply ignore them. Report pension cold calls to the Information Commissioner’s Office (ICO).
If you’re thinking about changing your pension arrangements, you should get financial guidance or advice beforehand. If you want to find an adviser, make sure they’re authorised by us. Never take advice from the company that contacted you, this may be part of the scam.
Report a pension scam
If you’re worried about a potential scam or you think you may have been contacted by a fraudster, report it to the FCA on 0800 111 6768.