Eight pension scam tricks to avoid during the UK cost-of-living crisis

A quarter of Britons would consider accessing their pension pot ahead of schedule amid the cost of living, new research shows.

According to the British financial watchdog, the number of pension pots rose 18 percent for the first time in 2021/22 to 705,666, from 596,080 the previous year.

The total value of money withdrawn from pension pots rose to more than £45 billion in 2021/22, up from around £37 billion in 2020/21, a 22 percent increase.

Withdrawals were up 24 percent and annuity sales were up 13 percent to 60,383 last year. Non-crystallized lump sum pension funds saw the largest increase, at 28 percent.

Unfortunately, scammers prey on people who are concerned about money and whether or not their pension pot will hold them for the duration of their retirement.

Seventeen percent of Britain’s over-65s are still in work simply because they can’t afford to retire with their current pensions, and more than a third aren’t confident they have enough in their pot have to last their entire pension.

The Financial Conduct Authority has warned today that scammers are using ‘deception’ tactics to trick victims out of their retirement savings.

It read, “Like magic tricks — where magicians use deception to distract attention while the trick is being performed — emerging scam tactics follow the same pattern.”

People who are considering accessing their pension pot early are especially at risk of falling victim to scammers in the current climate, the FCA added.

Distraction Tactics

Scammers distract victims by provoking money worries and building trust.

Worryingly, 44 percent of just over 1,000 people age 40 and older surveyed by the FCA would not hesitate to take up the offer of a free pension review. But the FCA has warned that offering such a free assessment is a “classic diversion tactic” used by criminals seeking to get their hands on people’s retirement money.

The FCA added: “Many would also be reassured if a potential scammer who contacts them out of the blue could show them verification by a third party, such as a separate person who can (wrongly) vouch for them ( 46 percent) and positive reviews of their service (31 percent), despite scammers becoming increasingly skilled at creating fake websites and brochures [as a distraction] in performing their “trick”.’

So, if you receive an unexpected text, phone call, email or letter in the mail offering you something like a free retirement assessment, be careful as it could be a scam.

Then comes the trick…

After successfully distracting their victims, scammers will fall victim to their victims’ misunderstanding of how retirement savings work to secure their hard-earned money.

More than half of those surveyed told the FCA they had no idea about how to grow their pension pot, while 38 percent said they weren’t sure about how pensions really work.

The promise of higher returns is just one of many tricks to watch out for, as is talking about more unusual investments to fund your retirement, such as a hotel in the Caribbean, for example. The premise of an “offer over time” is another factor to watch out for.

Pauline Padden, 58, was caring for her terminally ill mother when she received a text offering her a better retirement deal and some money in exchange for transferring her pot.

Pauline was promised a higher return on her retirement savings if she invested in a long-term hotel in the Caribbean. Six months later, Pauline was devastated when she received a letter explaining that she had been the victim of a scam and lost £45,000 in retirement savings.

Ms Padden said: ‘I was incredibly vulnerable at the time. I was busy caring for my terminally ill mother and my three children. The scammers took advantage of my vulnerability and robbed me of the prospect of ever retiring. I was just trying to make my retirement easier but instead these scammers have ruined my life.

“I still don’t know if I’ll ever get my savings back and probably have to keep working until I’m no longer able to. I just hope I can help make people aware of the signs to watch out for so that others never have to go through what I’ve been dealing with for the past nine years.”

Mark Steward, executive director of enforcement and market surveillance at the FCA, said: “Many of us watch in awe as magicians make things disappear before our eyes, even though we think we can see everything that’s happening.

“Once the trick is over, there are no consequences and we can enjoy the rest of our night. But that doesn’t happen with retirement scams.

“The rising cost of living affects people at all levels of savings, and pension scammers are taking advantage of this.

‘Pension scammers cheat victims with false promises of a better lifestyle in retirement, more money to support a better life in difficult times. Like the magician’s trick, thousands can disappear in seconds, but this time the consequences could be devastating.”

Director of Pensions and Savings at Interactive Investor Becky O’Connor said: “Attempts by pension scammers to segregate people from their savings are cunning and cynical.

“The FCA’s list of tactics is incredibly helpful, but also shows how smart the scammers are. After all, the term “long-term investment” is widely used by legitimate providers. So it’s no wonder that people are confused – and unfortunately fall for these tactics.’

Afraid of being scammed?

If you’re concerned that you or someone you know could be the victim of a retirement scam, take a look at the ScamSmart website, which has information that can help you avoid being scammed by scammers.

The FCA also has a handy Alert List tool available onlinewhich allows users to select the retirement or investment opportunity they are considering or have come across and see if it is likely to be a scam.

So if you are suddenly offered a free pension assessment, the tool will warn you and indicate that it is probably a scam. You can also check if the company is on the FCA’s warning list.

It is important to note that if you do business with an unauthorized company, you will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme if something goes wrong.

Why do more people have access to their pension pots?

The data released today by the FCA describing how Britons access their pension pot money is quite surprising and shows how habits are changing as the cost of living crisis deepens.

Andrew Tully, technical director at Canada Life, said: “People are withdrawing from retirement in much greater numbers than last year, while this could be a response to the pandemic when people were generally less likely to have some of the buy big tickets. such as holidays and cars. On the other hand, this could be the start of people looting their pensions to close an income gap or help younger relatives up the real estate ladder.”

Tom Selby, chief of pensions policy at AJ Bell, said: ‘The rise in the number of people accessing their pensions for the first time will inevitably raise fears that savers will loot their pension pots to make ends meet during the crisis of the global economy. cost of living. .

Anyone who goes into retirement earlier than planned or takes up larger withdrawals to cover higher living costs should think carefully about the impact this will have on the sustainability of their retirement income.

“While in some cases savers may feel that taking a dip in retirement is the only option, it’s important to take the time to think about the impact today’s decisions will have on your finances later.”

He added: “The data from the FCA suggests that four in 10 regular admissions had an annualized rate of 8 percent or more in 2021/22, a slight drop from 43 percent in the previous year.

Whether this withdrawal rate is a cause for concern depends on the individual’s circumstances, their health, age and the investment return they enjoy. For example, someone who has a guaranteed defined benefit pension that covers all of their living expenses may be quite comfortable taking large withdrawals from their SIPP.

‘Also, someone who retires at a later age (for example, mid-70s) must be able to take out a higher amount on a sustainable basis than someone who starts earning from the age of 60.

“The key to making withdrawals is to carefully consider the sustainability of your withdrawal plan, understand and be familiar with the risks you are taking, and review your strategy regularly, ideally with a regulated advisor.”

If you’re considering moving or raising money from retirement, it may be a good idea to seek professional financial advice from an expert before making a decision about what to do with your money.