Pension scams are on the rise with fraudsters taking advantage of the financial instability caused by the COVID-19 pandemic to encourage people to part with their money, promising great rewards in return. This is particularly tempting for people facing any financial difficulty.

What’s more, scammers are increasingly skilled at convincing victims, appearing financially knowledgeable and sharing legitimate-looking websites and testimonials with investors.

Pension scams are one of the most common types of scams and victims lose an average of £91,000—often all their life savings.

Here are the 3 different types of pension scams and how you can avoid them:

Early Pension Release

Some schemes will offer to help you release cash from your pension before you reach 55. This is known as ‘pension liberation’ or a ‘pension loan’.

However, normally you can only take money from your pension before the age of 55 in certain extreme circumstances like a terminal illness. Otherwise, it is classed as an ‘unauthorised payment’ and you may be taxed up to 55% on what you withdraw, as well as having to pay up to 30% in charges to the pension liberation company.

This makes it an extremely bad investment idea and, while not illegal, it should be treated as a scam.

One-Off Investments

Scammers might convince you to use all your pension funds in a single investment with apparently high returns and low risk. This is especially tempting at a time when most pension investment returns are particularly low.

Scammers will often promise guaranteed returns at seductively high rates on investments that are based overseas and involve unregulated products, such as forestry or storage units.

Most likely you’ll either lose all your money because the investment doesn’t exist or you won’t get the returns promised and will have to pay excessive fees and charges.

Free Pension Review

This one doesn’t immediately sound like a scam because it appears to be harmless. You might be offered a pension review by a door-to-door salesperson, or by phone or text. They’ll review your pension and then make claims to try and get you to transfer some of your funds into a more ‘lucrative’ investment. Inevitably, this turns out to be a scam.

How to Avoid Pension Scams

1.   Look out for warning signs.

Pension scams often involve red flags that can help you to identify them as illegitimate. These include:

• Cold calling - unsolicited contact from anyone about your pension should be regarded as suspicious. In fact, cold calls about pensions have been banned since January 2019. But this initial contact may not just be via telephone. It could also be by email, text, or social media. Or you might even be told about them by a friend or family member who is also being scammed.
• Promises of a ‘free pension review’ - professional financial advice on a pension will never be free.
• Other buzzwords - certain phrases like ‘pension liberation’, ‘loophole’, ‘one-off investment, and ‘cashback’ should put you on your guard.
• High returns - if it sounds too good to be true, it nearly always is.
• Time-limited offers - this is a classic tactic to increase pressure on investors and get them to agree to things without having thought them through.
• Complicated structures - if it’s not clear what your money is being used for or where it’s going, this should trigger warning bells, especially if the arrangement involves several different parties who will all be taking a fee.
• Long-term investments - the risk being that it could be a long time before you realise that anything is wrong.
• Single investments - most legitimate advisors will suggest you spread your funds across several different investment schemes.
• Couriers - they may send documents by a courier who will refuse to leave until you’ve signed them.
• No callback option - if a firm doesn’t allow you to call them back, this should also be a red flag.

2.   Check their details online

Check the name of the company director and see if the firm is registered with the government’s Companies House. You can also check online to see if anyone has had any bad experiences with the company.

3.   Speak to an independent financial advisor

Always get advice from a professional advisor before making any pension transfers. However, scammers sometimes pretend to be financial advisors, complete with professional-looking brochures and websites.

4.   Report scams

If you think you’ve been contacted by a scammer, contact Action Fraud. Or, in Scotland, call Advice Direct Scotland or Police Scotland. This will allow the authorities to investigate and prosecute scammers.

5.   Get help

If you’ve lost money due to a pension scam, get in contact with the Pensions Advisory Service, which also offers impartial pension information and guidance.