7 pension scams to watch out for

The cost of living crisis could leave more savers at risk as fraudsters target pension pots

The cost of living crisis could make vulnerable savers more at risk of falling for pension scams, a public body has warned. 

The Pensions Regulator (TPR), which protects workplace pensions in the UK, says these scams are currently posing a greater risk, as people who are struggling financially could be more susceptible to believing fake promises of early pension access or higher investment returns. 

In response, TPR has launched a new three-year strategy to crack down on these scams. 

Here, Which? explains the seven types of pension scams you should watch out for, and how TPR's strategy will protect savers in the future. 

Be more money savvy

free newsletter

Get a firmer grip on your finances with the expert tips in our Money newsletter – it's free weekly.

This newsletter delivers free money-related content, along with other information about Which? Group products and services. Unsubscribe whenever you want. Your data will be processed in accordance with our Privacy policy

How do pension scams work?

Anyone who saves into a pension can be the victim of a pension scam - it doesn’t matter how financially savvy you are.

Pension scams can take many forms and usually appear to be a legitimate investment opportunity. You may be persuaded to cash in your pension and hand over the money to be invested. 

Victims can lose more than £50,000 on average, according to Action Fraud data from 2021. And it’s estimated by a think-tank, The Police Foundation, that £2.5tn of pension wealth in the UK is accessible to fraudsters - a huge target base for criminals.

Which? Money Magazine

Find the best deals, avoid scams and grow your savings and investments with our expert advice. £4.99 a month, cancel anytime

Sign up now

The seven types of pension scams

TPR says it’s primarily concerned with seven kinds of pension scams, which can often be seen in combination with one another, and one spin-off scam. 

It also wants to distinguish between:

  • Pension fraud: such as investment fraud, where there are potential criminal sanctions brought about by TPR and the Pension Scams Action Group (PSAG).
  • Practices which lead to savers' harm: such as high fees, which it tries to mitigate through use of its regulatory tool kit.

1. Investment fraud

Investment fraud is when scammers misrepresent high-risk or false investments to pension savers. 

Scammers will try to persuade you to transfer your entire pension savings, or at least release a sum of funds from your pension, by making attractive-sounding promises of high returns and great investment opportunities that often don'ot exist. 

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

Pension freedom rules allow you to take a tax-free lump sum from your pension when you reach 55 - if you have a defined contribution (DC) pension, you can withdraw up to 25% of your pension pot.

If you access these pension savings before you turn 55, you'll be faced with a 55% tax bill - but some scammers promise they can get you early access through bogus loans and loopholes. 

These 'early access' services often come with fees of up to 30% of what you're withdrawing and may invest whatever's left into dubious high-risk schemes.

The only instances where you can access your pension before the age of 55, are if you're in poor health or you work in an occupation that traditionally has early retirement ages - such as athletes. 

3. Scam pension schemes and providers

There are cases where pension schemes and providers are set up to deceive victims, and they either don’t exist at all, or do exist but are committing fraud.

They may tell you they can ‘guarantee better returns on pension savings’, often using high-pressure sales tactics such as limited time offers, and sending documents via couriers, who wait around until you sign them.

4. Clone firms

Worryingly, in some cases opting to save with a legitimate provider that you recognise can also turn out to be a scam. This is because fraudsters will pose as the real company, tricking you into sending your money to the wrong place.

Action Fraud describes these firms as ‘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, complete with the fake firms' contact details, so you know what to avoid. 

5. Claims management companies

Not all claims management companies (CMCs) are scams, however TPF has included them in its list in cases where cold calling practices are used. 

Cold calling about pensions is illegal, and is therefore a likely sign of a scam. Since the ban was introduce,d tactics have now evolved, and you may be contacted through social media instead. 

Scammers who contact you will often claim you've been mis-sold a pension, and will then ask for a fee to begin a claims process.

6. Employer-related investment

Employer pension schemes are meant to operate in the best interests of the company's employees. 

A breach of employer-related investment (ERI) restrictions takes place in cases where employers divert employees’ pension payments to invest inappropriately in their business, which then often leads 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, meaning savers lose out on money that should be invested.

There's also a spin-off scam that's related to the seven above, where fraudsters approach pension savers who have already been scammed and offer to help them get their money back for an upfront fee.

This scam tends to involve cold calling, with high-pressure sales tactics and upfront charges described as 'tax, solicitor or administrative fees'. 

Which? Money Podcast

Join us on our weekly audio show for the latest money news and personal finance hacks to help make you better off.

Listen now

What will the action plan involve?

The new strategy by TPR will tackle pension scams by: 

  • educating savers about the threat of scams 
  • encouraging higher standards and preventing practices which lead to saver harm
  • fighting fraud through the prevention, disruption and punishment of criminality.

Nicola Parish, executive director of frontline regulation, added: ‘But this task is not ours alone, and we expect industry to also lead the way in thinking of innovative ways to protect savers now and in the future.’

How to spot a pension scam

Action Fraud has put together a list of steps you should take to protect yourself from pension scams: 

Reject unexpected offers

If you’re contacted out of the blue about a pension opportunity, the chances are it’s a high-risk investment or a scam.  

Action Fraud has advised people to hang up on cold calls, report them to the Information Commissioner's Office and ignore any unsolicited offers via email or text. 

You should also be wary of free pension reviews.  

Check the FCA register

You can use the FCA register to check whether individuals or companies are authorised to provide the services being offered.

If they aren't FCA authorised, you may not have access to the Financial Ombudsman Service to make complaints, and may not be protected by the Financial Services Compensation Scheme (FSCS) if you lose money as a result.

If the firm is on the register, you can call the consumer helpline on 0800 111 6768 to check whether the firm is permitted to give pension advice. You can also check the warning list.

Get independent financial advice

If something sounds too good to be true, it probably is. If you're considering making a change to your pension, seek financial guidance or advice before making any decisions. 

You may also want to check the Money and Pensions Service, which provides free independent and impartial information and guidance.  

If you’re over 50 and have a personal or workplace pension, Pension Wise offers pre-booked appointments to talk through your retirement options.

You can also use a financial adviser to help you make the best decision for your own personal circumstances.

Are you worried about your finances?