Customers helped

Pension scam risk increased by lockdown

Updated 06 December 2022

5min read

Nick Green
Financial Journalist

There’s more than one nasty disease out there. The social and economic effects of COVID-19 have created openings for pension fraudsters to exploit – so retirees need to be on their guard. Article by Nick Green.

Pension scams during COVID-19

Just as the coronavirus crisis has brought out the best in humanity, in the form of selfless healthcare workers and the nationwide support for them, it has also – sadly – dredged up some of the worst. There are some who see the crisis only as an ‘opportunity’ to con older people out of their life savings.

Scams overall have spiked since the beginning of the lockdown, with over £2 million reported lost by more than a thousand individuals, in fraud directly relating to the coronavirus. Methods include fake emails from leading supermarkets offering free vouchers or delivery slots, drawing the unsuspecting customer to sites that harvest their financial details.

These are just the more visible scams that have come to light in recent months. Pension fraud typically takes far longer to detect, since the damage may only materialise years or even decades later. Criminals have had pension pots firmly in their sights since 2015, when pension freedom granted savers unprecedented access to their pots from the age of 55. Having exploited that event, it was always inevitable that they would also try to exploit the fallout from COVID-19 to prey on the most vulnerable.

Why the virus creates ideal conditions for pension fraud

In terms of raising the threat of pension fraud, the coronavirus brings a perfect storm. The group most at risk from the virus – older people – are also the prime targets for this kind of crime. They will currently be most concerned for their health, isolated from younger family members (who may be more fraud-aware), and worried about their family’s income and potential inheritance. Similarly, those over 55 but still working may be furloughed or out of work, short on cash and anxious about making ends meet. Most of all, the crisis has disorientated everyone, making it harder to distinguish suspicious behaviour from ‘the new normal’ of coronavirus responses.

In March, Action Fraud reported a 400 per cent rise in coronavirus-related fraud, and a measurable increase in attempted pension scams. The usual methods for pension fraudsters to approach their victims are via telephone (cold-calling) or unsolicited emails, so neither will be hampered by the lockdown measures. Meanwhile potential victims, now accustomed to everyone getting in touch this way, may be less on their guard.

In the period from 2015 to 2018 the average individual loss to pension fraud was £82,000 or a total of £4 billion per year. Most of this was achieved through cold-calling, with savers lured into making snap decisions through the offer of lucrative investments. A powerful draw is the promise to boost their children’s inheritance – something which may hold even more temptation during the current crisis. Fraudsters also exploit their victims’ confusion over pensions, which again may be far easier to do at the present time.

Some online pension providers have gone so far as to alert their customers with an online game. Pension Bee, AgeWage, Smart Pension and Nutmeg have launched ‘Scam Man and Robbin’ as a fun way to teach savers how to spot a pension fraud. Meanwhile the Pensions Regulator, the FCA and the Money and Pensions Service have jointly warned people not to make hasty pension decisions at this time.

Beware of state pension fraud during the crisis

Another serious problem arising from the lockdown is the number of people who have habitually collected their state pension in person from the Post Office. Risk of infection will understandably deter many of these people, who may not yet have made alternative arrangements for receiving their state pension.

Former pensions minister Steve Webb estimates that around 900,000 people rely on cash payments collected in person for their state pension and/or benefits. However, so far the government has only been able to contact 27,000 individuals about alternative ways of getting their money.

The Post Office has warned that those with a Post Office card account (POca) should not give their card or PIN to anyone else to collect their payments for them, as this is a fraud risk. Instead, they should appoint someone they trust as a Permanent Agent, with their own unique card and PIN. This greatly reduces the risk of money being stolen.

The risk of final salary pension transfers

Fraud is not the only potential risk to pension savers at this time. Pensions could also be seriously harmed by savers’ own well-intentioned but misguided actions. In particular, anyone with a final salary pension who is thinking of transferring it should consider their situation carefully, with the help of independent advice.

The Pensions Regulator is so worried about the risks of pension transfers at this time that it is sending warning letters (co-signed by the FCA and the Money and Pensions Service) to all who apply for them. In 2018 around 210,000 people carried out final salary pension transfers, trading in their guaranteed incomes for pension pots with an average worth of nearly £162,000. This kind of apparent ‘windfall’ will be increasingly tempting to those facing a loss of income now. But in most cases the risks will outweigh any benefits.

The main risk of a pension transfer comes from exchanging a guaranteed income for a finite pension pot, which is exposed to the stock market. Recent events have reminded everyone that ‘investments can fall as well as rise’. From January to March, the FTSE 100 lost a quarter of its value, so someone who transferred their pension at the end of 2019 might have lost up to a quarter of their pension pot already. This of course has nothing to do with fraud or scams, but is simply the very real risk inherent in any pension transfer. The Regulator’s warning letter will therefore alert savers to the threat of similar losses if they transfer into a turbulent market.

It is also worth pointing out that final salary schemes are not vulnerable to fraud in the way that pension pots are, since there is no central pot of money to steal.

Spotting pension fraud: the top 5 danger signs

Here the warnings that should alert you if someone is trying to con you out of your pension pot.

1.  Cold callers

This really is the biggest red flag. If you didn’t call them, or arrange for them to call you (such as by using the Unbiased matching tool to find an adviser) then refuse to speak to them. If it’s an Unbiased financial adviser, you’ll be able to identify them from the email you’ve received, so check that they are calling from the same firm. Call them yourself on their Unbiased-listed number if you’re unsure.

2.  It sounds too exciting

Sorry to disappoint, but most real financial advice is reassuringly dull. Anything offering you ‘market-busting returns at zero risk’ is defying the laws of investment, so is almost certainly fake. Beware of short cuts to riches – they only work for the fraudster.

3.  Pressure selling

Real financial advisers are not one-trick ponies. They won’t bang on about one brilliant investment, but will always offer you a range of options, setting out the pros and cons of each. A classic giveaway is if someone says that time is running out, and you must invest today. Financial advice does not work that way.

4.  People who are hard to contact

Make sure you have full verified contact details for an adviser before you enter any agreements or sign anything. Also make sure you have seen and verified their qualifications. You will have these assurances already if you found your adviser through Unbiased.

5.  Claims that relate to the coronavirus

Although some financial advisers are indeed offering pro bono services during this crisis, they will never call you first. If you receive unsolicited phone calls or emails claiming to be a free pension service (perhaps with reference to COVID-19) treat them with suspicion. Make sure any financial adviser who contacts you is the same one named in the email you will already have from Unbiased. And if you haven’t asked to be put in touch with this person, do not respond to them.

Find out more about how to avoid pension fraud and discover the latest figures in our investment scam survey.

Match meI’d like to speak to a financial adviser

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.