The FCA has launched a new ScamSmart campaign that aims to provide consumers with the knowledge and tools to avoid pension scams.
The new research found that a quarter (25 per cent) of consumers would consider withdrawing money from their pension earlier than planned to cover the cost of living. This is supported by retirement income market data that showed that the number of pension plans accessed for the first time in 2021/22 increased by 18 per cent to 705,666 compared to 2020/21 (596,080).
Preying on money worries and lack of confidence in pension savings to last through retirement, the FCA is warning that scammers are using “misdirection” tactics to con victims. Just as with magic tricks — where magicians use misdirection to divert attention while the trick is carried out — emerging scam tactics are following the same pattern.
If a consumer deals with an unauthorised firm, they will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.
The most commonly used tactics of pension scammers to be aware of include:
- The offer of a free pension review
- Higher returns, where they will guarantee they can get you better returns on your pension savings
- Help to release cash from your pension even though you’re under 55. An offer to release funds before age 55 is highly likely to be a scam and has major tax implications
- High-pressure sales tactics, where the scammers may try to pressure you with “time-limited offers” or even send a courier to your door to wait while you sign documents
- Unusual investments — Which tend to be unregulated and high risk and may be difficult to sell if you need access to your money
- Complicated structures where it isn’t clear where your money will end up
- Arrangements where there are several parties involved (some of which may be based overseas) all taking a fee, which means the total amount deducted from your pension is significant
- Long-term pension investments — Which mean it could be several years before you realise something is wrong
The FCA surveyed more than 1,000 people aged 40 and over with workplace and private pensions to uncover how this could impact them.
It found the scams follow a certain pattern beginning with a distraction.
Research showed 44 per cent would take up the offer of a free pension review — A classic distraction tactic. Concerns about having enough money to last throughout their retirement make them vulnerable to the lure of boosting pension returns: 17 per cent of over-65s are still in work simply because they cannot afford to retire on their current pension, and over a third (37 per cent), are not confident they have enough in their pension to last their whole retirement.
Many would also be reassured if a potential scammer getting in touch out of the blue could show them third-party verification — Such as a separate individual who can (falsely) vouch for them (46 per cent) and had positive reviews of their service (31 per cent), despite the fact scammers are becoming increasingly skilled at producing fake websites and brochures [as a distraction] when carrying out their “trick”.
The next part of the scam is preying on their victims’ misunderstanding of how pension savings work to secure their hard-earned money: over half (54 per cent) said they did not feel confident in how to grow their pot, and 38 per cent do not feel confident in understanding how pensions work.
The FCA is calling on all consumers to be ScamSmart and check the information on the ScamSmart website, including the Warning List, before making any decision about their pension. This will help identify any firms that are actively running scams, or flag to consumers the signs to look out for to avoid being scammed.
Mark Steward, executive director of enforcement and market oversight at FCA, said the rising cost of living is affecting people at all savings levels, and pension scammers are taking advantage of this.
“Pension scammers are tricking victims with false promises of a better lifestyle in retirement, more money to support a better life in hard times. Like the magician’s trick, thousands can disappear in seconds, but this time the consequences can be devastating ones,” he said.
