The Financial Conduct Authority (FCA) has said it is worried about the rise of ‘misdirection’ pension scams, where fraudsters are using tactics similar to the ones adopted by magicians.
Often consumers will be approached with the offer of a free pension review, a classic distraction tactic, the FCA explained.
With the current cost-of-living squeeze, consumers are concerned about having enough money to not only cover their expenses but also to have adequate provisions for their retirement, leaving them vulnerable to scammers.
FCA research revealed that 25% of consumers would consider withdrawing from their pension earlier than planned to cover rising costs. At the same time, market data shows an 18% increase in the number of pension plans accessed for the first time in 2021-22, with a total of 705,666.
With nearly a fifth (17%) of over-65s still working because they cannot afford to retire, and 37% worried their pension will not last for their whole later life, people are at a higher risk of falling prey to fraudsters, who are becoming incredibly skilled at producing verifications and fake websites.
The FCA explained fraudsters leverage the victims’ misunderstanding of how pension savings work and use high-pressure sales tactics which result in consumers agreeing to transfer out in the promise of cash or higher returns.
As a result, the regulator has launched a ScamSmart campaign urging consumers to be vigilant and check information on its website before making any decisions about their pensions.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Many of us sit in awe watching magicians make things disappear right in front of our eyes, despite us thinking we can see everything going on. Once the trick ends, there are no consequences, and we can enjoy the rest of our night. But that doesn’t happen with pension scams.
“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.”
Risk of losing everything
Tom Selby, head of retirement policy at AJ Bell, said that almost half of over-40s would take up a ‘free pension review’ offer, opening the door for scammers to play their tricks.
“As inflation tightens its grip on Brits’ finances and millions of households face up to the prospect of spiralling mortgage bills as interest rates rocket, it is inevitable scammers will increase their activity as they look to prey on rising vulnerability,” he said.
“Recently published data shows the number of savers accessing their retirement pots for the first time surged in 2021/22, a trend undoubtedly linked to the rising cost of living. This combination of vulnerability and rising numbers of people accessing their retirement pots is like blood in the water to fraudsters, who will often employ Derren Brown-style con tricks and misdirection to exploit people’s lack of confidence and understanding of pensions.
“The con often begins with a distraction, such as offering a ‘free pension review’. Worryingly, almost half (44%) of over 40s with a pension would take up this offer, opening the door for fraudsters to build trust and set the foundations for the con. This trust can be fostered through providing fake third-party verifications, which all-too-often results in people dropping their guard when speaking to a stranger about their pension.
“This is compounded by the fact many people are not confident they have enough in their retirement pot and so may be prone to fraudsters claiming to offer ultra-high investment returns.
“Having built trust and hawked their investment ‘opportunity’, fraudsters will convince their victim to give them large chunks of their retirement cash. Often these investments will be entirely fictitious, meaning savers handing over their money risk losing everything.”