Pension savers may be vulnerable to scammers as living costs bite, FCA warns

Cost-of-living concerns could drive some pension savers into scammers’ clutches, research from the City regulator suggests.

A quarter (25%) of people said they would consider withdrawing their pension savings earlier than planned to cover living costs, potentially making them vulnerable to criminals.

The Financial Conduct Authority (FCA) is warning that scammers are using “misdirection” tactics to con victims, including promising them a better lifestyle in their later years.

In reality, victims can end up losing their life savings and having their retirement dreams shattered.

If a consumer deals with an unauthorised firm, they will not be covered by the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS) if something goes wrong.

The FCA commissioned a survey of more than 1,000 people aged 40 and over with workplace and private pensions, to uncover how scams could affect them.

More than two-fifths (44%) would take up the offer of a “free pension review”, despite this being a warning sign of a potential scam.

Concerns about having enough money to last throughout their retirement may make people vulnerable to the lure of boosting pension returns.

Many would be reassured if a potential scammer getting in touch out of the blue could show them third-party verification, the research found, despite scammers being able to produce fake websites and brochures to make the con appear to be an authentic opportunity.

More than half (54%) of those questioned said they did not feel confident about how to grow their pension pot, and 38% did not feel confident in understanding how pensions work.

Retirement income market figures show that the number of pension plans accessed for the first time in 2021/22 increased by 18% to 705,666 compared with 2020/21 (596,080).

The FCA said that, in one case, a 58-year-old woman lost £45,000 in pension savings. She was looking after her terminally-ill mother when she received a text offering a better deal on her pension and some cash in return for transferring her pot.

She was promised higher returns on her pension savings if she invested in a long-term hotel build in the Caribbean. Six months later, she was devastated to find out that she had been the victim of a scam.

She said: “The scammers capitalised on my vulnerability and robbed me of the prospect of ever retiring.

“I was only trying to make my retirement easier but instead these scammers ruined my life. I still don’t know if I’m ever going to be able to get my savings back and will probably have to keep working until I am no longer fit to do so.

“I just hope I can help to raise awareness of the signs to look out for so that others never have to go through what I’ve had to deal with over the last nine years.”

The FCA is urging people to check the information on the Scamsmart website, including its “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, FCA, said: “The rising cost of living is affecting people at all savings levels, and pension scammers are taking advantage of this.

“Misdirection in this context means victims are lured in with the promise of a better lifestyle in retirement, or to support their living costs with pension savings.

“The scam then takes place right in front of their eyes, and it means thousands can be lost, for good. It’s important that consumers stay alert to these tricks, and visit ScamSmart to protect themselves before the sleight of hand can begin.”

Here are some common tactics used by pension scammers, according to the FCA:

– The offer of a free pension review.

– Being offered higher returns, where they will guarantee they can get you better returns on your pension savings.

– Being offered help to release cash from your pension even though you are under 55. An offer to release funds before the age of 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 investment structures where it is not 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 that something is wrong.