Pension Fraud

Pension fraud has become an area of increasing concern, especially now that Scheme members have more options than ever before for what to do with their pension savings and so much financial activity takes place online.

Pension liberation is a particular type of scam where a company may contact you to help convert your pension savings into cash or income before you retire. Typically, however, all would not be as it may first appear:

• The company will take a significant amount of your savings as its commission for arranging the payment.
• Pension schemes receive tax advantages on the understanding that you will receive the money in later life. If you draw this money before the legal minimum age for receiving pension (generally age 55, unless you are in ill health), you will have to pay tax penalties based on the whole amount – not just the savings left after commission.

The likely reality is that you would be left with a fraction of the pension savings you had before taking up the offer.

On the alert

In extreme cases, pension scammers have been able not just to make money from misleading individuals into accessing their benefits early – but even to steal their entire savings.

With the introduction of flexible options for defined contribution benefits, some criminals have been able to take advantage of people not fully understanding their choices, even suggesting in e-mails or correspondence they might be linked to Pension Wise, the Government's dedicated guidance service about the options.

You can read more about pension scams, including suggested ways to protect yourself from them, on the MoneyHelper site.  The Financial Conduct Authority also includes further information about scams on its ScamSmart website.

How to avoid becoming a victim

• Never give financial or personal details to a cold caller.
• Look online for the company’s background information. Financial advisers should be registered with the Financial Conduct Authority.
• Request a statement of how your pension will be paid in retirement and ask who will look after your money in the meantime.
• Speak to an independent financial adviser.
• Do not allow anyone to rush you into transferring your pension.

Signs of pension fraud

• Unsolicited text messages or phone calls.
• Offers to transfer your pension into cash before age 55.
• Forceful advisers who offer upfront cash incentives.
• Companies offering you a loan, saving advance or cash back from your pension.
• No information about potential tax consequences.
• A lack of documentation about the pension arrangement.