How to protect yourself from pension and investment scams

Financial scams are depressingly common, particularly following a period of high inflation and rising interest rates which stretched millions of household budgets to breaking point. Economic turmoil is like blood in the water to scammers, who are using increasingly sophisticated tactics to fleece people of their hard-earned pensions and investments.

The numbers involved are eye-watering. In 2023 alone, over £1 billion was stolen through fraud in 3 million cases, according to data from UK Finance, with investment scams making up over £100 million of this figure. These scams often involve coercing people to access their retirement pot and invest it in something extremely high-risk offering sky high, ‘guaranteed’ returns, such as overseas properties or cryptocurrency.

All-too-often, these unregulated investments either fail to deliver or are completely fictitious, with victims left with little or nothing and no recourse to the Financial Services Compensation Scheme (FSCS).

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Fraudsters are also targeting people who have not yet reached age 55 – the age from which you can currently access your pension – with schemes claiming to allow you early access to your retirement pot. These ruses come in many guises, including offering to loan you money if you invest in a particular stock, but all are an attempt to flout the rules and leave you at risk facing a 55% tax charge from HMRC on top of sky-high fees. As with other investment scams, many of these pension ‘liberation’ offers are simply out-and-out fraud that will leave you penniless.

The good news is that, with a bit of care, you can protect yourself from the risk of falling victim to scams. In fact, in 2022, savvy Brits blocked £2 million of potential fraud by spotting warning signs and reporting them, according to City regulator the Financial Conduct Authority (FCA).

With that in mind, here are five simple things you can do to make sure your money doesn’t fall into the wrong hands.

1. Be suspicious of unsolicited contact or unregulated offers on social media

Scams often start with a call, text or email out of the blue offering ‘help with’ or perhaps a ‘review of’ your pensions or investments. Social media is also an increasingly lucrative hunting ground for fraudsters. If someone you don’t know contacts you about your pension or investments - or indeed your finances in general - do not engage with them. If you believe someone is trying to scam you, report them to Action Fraud to help protect other investors.

2. Be extremely wary of anyone promising large, guaranteed returns or early access to your pension

Another tell-tale sign of a scam is the promise of huge, guaranteed investment returns, often over relatively short spaces of time. These investment ‘offers’ take many weird and wonderful forms, while the rise in popularity of cryptocurrencies has also been an obvious target for financial fraudsters. In addition, anyone claiming they can facilitate early access to your pension is almost certainly a fraudster.

3. Only deal with regulated companies and individuals

At the heart of scams are often unregulated ‘introducers’ peddling unregulated investments. Where fraud occurs it is usually connected with the sale of an unregulated investment. The assets which you are supposedly investing in may not even exist. Even where an unregulated investment is real, if you suffer losses through mis-selling you will not qualify for FSCS protection worth up to £85,000.

4. Do your due diligence

Scammers’ tactics have become more sophisticated in recent years, with ‘clone’ scams - where fraudsters impersonate a real firm to con you out of your cash. You can cross-check the phone number or email address provided by someone who contacts you with the FCA register to make sure they are who they say they are.

5. Don’t be rushed and if in doubt, speak to a regulated financial adviser

High-pressure sales tactics - such as telling someone they need to invest by a set deadline - are a classic scam tactic and should immediately set off alarm bells. Don’t be rushed into an investment decision. If you want help with your options or are unsure what to do, consider speaking to a regulated financial adviser. The government-backed MoneyHelper service has free guidance on pensions and scams, and an adviser directory.

The FCA’s ‘ScamSmart’ website is another great resource to keep up-to-date on the latest tactics being deployed by fraudsters.