Pension savers in the UK had more than £2m stolen from their pension pots in just six months of 2021, according to findings from Action Fraud. This alarming figure is quoted in a report commissioned by the Money and Pensions Service, which highlights the scale of pension fraud and offers suggestions on how to avoid becoming a victim.

What are pension scams?

The standard minimum pension age is currently 55. Anyone who makes a withdrawal from their pension below that age will normally suffer a 55% tax charge. According to the report, one type of pension scam involves people under 55 being tricked into transferring cash from their HMRC-registered pension scheme into a fake scheme set up by the scammer. This scam can therefore not only deprive people of their pension savings, but also land them with a tax bill.

Alternatively, scammers might convince pension savers over 55 to withdraw funds. These are then invested in fraudulent or risky assets which either pay out to the scammer or result in them receiving extortionate commission.

How serious is the problem?

The £2m lost to fraudsters in the first half of 2021 is likely to be a significant underestimate of the true scale of pension fraud.

The Financial Conduct Authority estimates that fewer than 1 in 5 pension fraud victims report this crime, sometimes because they do not realise for several years that they have been scammed. Despite this lack of awareness, reported pension scams increased by 45% in 2021, indicating that this type of crime is growing rapidly.

The financial and emotional impact on victims can be devastating, with decades of savings at stake and retirement dreams potentially ruined. There are also wider economic effects, with people affected having to rely on public services and social care.

How can you spot a scam?

The under-reporting of scams makes it difficult to identify common characteristics, and to warn pension savers what to be on the lookout for.

As with many scams, one warning sign may be pressure to do something urgently. The scammer might pitch there being limited time to make the most of an investment opportunity, or to act before regulations change.

For instance, the normal minimum pension age is set to increase from 55 to 57 with effect from 6 April 2028. As that date gets closer, scammers may use this rule change as a ‘hook’ to pressure people into wrongly accessing or transferring their pension funds.

Whilst the report acknowledges that anyone can be a victim of pension scams, particular risk factors are believed to include:

• Age – those approaching retirement may be more likely to fall for ‘quick win’ solutions to boost their pension pots.
• Higher levels of education, and over-confidence in your own financial abilities.
• Having fallen for a scam before – previous victims of pension fraud may be desperate to regain their lost savings, and their details may be shared between scammers.

Pensions are a complex area, and scammers prey on this and savers’ desire to provide for a comfortable retirement. If you have any doubt about pension advice you receive, your pension provider may be able to help. Alternatively, the Pensions Regulator website has more advice on how to avoid and report scams.

This article reflects the position at the date of publication (18 October 2023). If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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