Pensions  

Scam smart: Six ways scammers are targeting vulnerable individuals

Early access to pension assets

A pension fund is locked away until retirement for a good reason. There are strict laws about the age at which these tax-privileged savings can be accessed, how they can be paid, and how they will be taxed. 

For all but a small minority of people, the earliest they can legally access their pension is age 55. Funds taken out before then would be subject to very high tax charges – up to 70 per cent of the amount taken – so it isn’t going to be worth doing.

The scammer will try to take control of a fund and then pay the money out, with a cut for themselves. They are then going to disappear, leaving the client with the tax charge to pay HM Revenue & Customs for the privilege. It is possible that a client will have nothing left once the scammers have taken their gains and HMRC has levied its charges – they may even owe HMRC money from their own pocket.

A slightly smaller proportion of those surveyed in the research felt they could fall for this type of scam, with only 17 per cent of 45 to 54-year-old pension savers saying they would be interested in a company that offered them early access to their pension pot.

Guaranteed high returns

Offering guaranteed high returns has been a staple of scammers across the years and it isn’t just related to pension funds. Numerous investments have promised to pay high returns for many years with a full return of capital. 

In order to entice people, it’s likely that these early investors could well see returns equivalent to what they are expecting, although it may not be derived from the investment they think. The funds of later investors may well be used to pay the returns to the original investors, and possibly even be used to return their capital.

By doing this the scammers can draw in more and more investors, maximising their total profits before disappearing. Again, these investments are going to be in areas where there is little or no regulation. What appears too good to be true should be treated as such and avoided.

Fortunately, the promise of unrealistic investment returns caused alarm bells with a significant proportion of those surveyed. Only 13 per cent of 45 to 65-year-old pension savers would pursue an offer guaranteeing returns of 11 per cent on their pension savings.

Free pension reviews

The offer of some ‘free advice’ can be very tempting. But it can also mean that scammers get their hands on a lot of personal data and precise details of a client’s pension schemes. They may be offering the free review simply to encourage a transfer to another pension, where one of the other scams can take place, or they could be accessing information to try and take the funds without the client knowing.