How your pension is at greater risk from scammers than ever before

Pauline Padden was working nights as a critical care nurse at Alder Hey Children’s Hospital in Liverpool and desperate for some time off to look after her terminally ill mother.

However, the 60-year-old mum of three could not afford to stop working. Then, out of the blue, Pauline received a text that promised an easy way to find the extra cash she needed.

The person messaging her asked if she had a dormant pension sitting around that she no longer contributed to, due to a switch in jobs.

As it happened, Pauline did. After following up the text she received a phone call from a very believable woman who told her that by moving her £45,000 pension pot to an investment that offered much higher returns, she could release a significant sum of tax-free cash.

Pauline did some basic checks and everything looked legitimate, so she transferred the funds to what she believed was the Gresham Investment Pension Scheme. But within a few months, Pauline discovered learned this fund never existed and her money was nowhere to be found. Pauline had fallen prey to a criminal gang operating from a call centre in Spain.

“I was devastated,” says Pauline. “I’m never going to get that back again. I’d never get £45,000 together. I’m not going to be alive long enough to do that.

“It is a very real crime. There are victims and we do pay the price”.

Pauline is just one of thousands of victims of criminals targeting pension pots, who experts believe have stolen around £15bn over the past decade. And the problem is only set to get worse as scammers begin using increasingly sophisticated methods such as using artificial intelligence (AI) to prey on people’s pensions.

Pensions scammers thriving in cost-of-living crisis

More than 10,000 people could be hit by pension fraud this year as the cost-of-living crisis increases the temptation of cash-strapped savers to fall for investment scams.

That is the estimate of Margaret Snowdon, chairwoman of the Pension Scams Industry Group, who believes that the current squeeze on household budgets could lead to the largest number of pension frauds since the global financial crisis of 2008.

“We had the biggest rise in pension scams in 2008 and now we’re in pretty shaky territory economically again,” says Snowdon. “People are finding it very difficult after years of austerity and with pay not keeping place with price rises. It’s tough for people.”

Figures from Action Fraud, an official group that works alongside the City of London Police to record all investment crimes nationally, suggest there were only 376 reports of pension fraud in the past 12 months.

But Snowdon believes this does not show the true scale of the continuing problem.

“This is the tip of the iceberg,” she says.

Snowdon explains that Action Fraud only registers frauds on pensions if the crime targeted a person’s pension directly. Once a person has withdrawn some or all of their pension pot, the cash is not considered pension money. Therefore, even if that money is lost to scammers in a fake investment, it is not considered a pension fraud.

Snowdon adds another issue with the official figures is that people who are scammed are often too embarrassed to report the crime.

“I’ve looked into this for more than a decade and I found that up to 10,000 people a year are affected and that there’s probably been around £15bn stolen from people in pension fraud.

“Now, we are in a time where people are more vulnerable, so that figure could go up as people seek to just get by.”

The growing concerns over pension fraud even saw EastEnders recently feature a storyline on the topic.

Much-loved character Jean Slater was persuaded to transfer her pension into a high return investment after participating in a free pension review.

In scenes that aired last November, it transpired that she had been scammed and was forced to face the heartbreaking consequences of her financial loss.

AI leads to new risk of pension fraud

The Conservative government allowed pension holders aged 55 and over to cash in some or all of their retirement savings from April 2015.

Former chancellor George Osborne envisaged the policy would allow millions of people to have freedom to spend their savings how they wished and benefit from better returns.

Indeed, pensioners rushed to take advantage of those freedoms. According to government figures, the total value of pensions taken out early reached more than £70bn during the first decade.

Osborne’s strategy also led to a huge rise in criminals seeking to con people out of their money with promises of better returns from fake investments, including property schemes in places such as Spain, and more lately, crypto currency.

The i Paper also understands that pension scammers are now using AI to originate many more authentic-sounding calls to vulnerable individuals.

Therese Chambers is joint executive director of enforcement at the City regulator Financial Conduct Authority and fears AI could see the amount of pension fraud continue to rise.

She said: “A boiler room used to literally be a room full of people with phones. They were limited in the amount by which they could defraud people, by literally the number of people they could physically call up and speak to.

“AI allows mass communication to occur. Obviously, if you’re communicating with 100 people, you might get lucky with eight of them. But if you’re communicating with 100,000 people or a million people, an 8 per cent success rate will result in a lot more money being stolen.”

While withdrawing savings from a pension is only permitted for those over 55, younger savers can also fall victim to criminals offering much higher returns if they transfer away from their current pension provider to another fund that in reality doesn’t exist.

David Fairs, chairman of the Pensions Administration Standards Association, says that scammers will often use “ludicrous” high interest returns to tempt people to withdraw their pensions in an alternative “get rich quick” scheme.

“Scammers set up pension arrangements that are vehicles to receive money from people, and so people legitimately thought they would transfer into a pension scheme and were promised ludicrous returns of 15-20 per cent a year.

“The thing is when something seems too good to be true, it usually is,” says Fairs. “There might be alarm bells ringing in your head that this sort of seems a little bit too good to be true, [but] you can block some of those little red flags that pop up in your head just because you’re so you’re so desperate for the money.”

Tax authorities piles on the misery

For those victims of pension fraud, an additional problem is that some may face a hefty tax bill as HMRC is allegedly forcing fraud victims to pay tax on pension savings stolen by scammers.

Although the first 25 per cent taken out of a pension is tax free if you are over-55, anything additional to this is taxable and the HMRC could also consider it an unauthorised payment, even in cases of fraud.

This means a victim of pension fraud could be subject to tax charges of at least 55 per cent on the money they’ve had stolen.

Snowdon is calling on the government to stop the HMRC going after pension fraud victims. She believes the tax authorities are chasing between £20m and £30m from people who lost their pension savings in a scam.

“HMRC is taking tax from people unwittingly caught up in pension frauds, ” says Snowdon. “You really couldn’t make it up.”

She is calling on the HMRC to introduce a new tax code that allows victims to pay less tax so they can make up the losses.

“It would seem fair that, instead of taxing people on a mistake, they are given tax relief to earn what they lost back,” adds Snowdon. “So you go on working and being productive to the economy, but you’ve got a tax allowance against [you] until you’ve worked out the amount you’ve lost.”

Baroness Newlove, the victims’ commissioner for England and Wales, has also taken up the case of victims being hit by HMRC bills after being defrauded of their retirement savings.

In the letter the Chancellor Rachel Reeves, she wrote: “I have been told about victims who have felt suicidal due to their treatment by HMRC. Some victims have found this treatment to be as traumatising as the crime itself.”

An HMRC spokesperson said: “We sympathise with people who may have lost money by entering such arrangements and handle these on a case-by-case basis, taking the wellbeing of all taxpayers seriously. Anyone who is worried about a tax liability should contact us as soon as possible to talk about options.

“We do not tax pension savings lost to fraud. We tax amounts that people release, or attempt to release, from their registered pension schemes where not authorised in law.”

“I’ll never get my £45,000 back”

After Pauline was swindled out of her £45,000 pension plot, the criminal gang responsible were convicted and jailed. It emerged there had been 200 victims of this pension fraud who had between them been swindled out of almost £14m.

Pauline believes she will never get her money back. She advises others to “stop and think” before making any decisions about their pension, adding: “Give it time, don’t rush into it. Take a step back and take a look at the great big picture – and say is it genuine or is it too good to be true?”

Gaucho Rasmussen, executive director of regulatory compliance at the Pensions Regulator, says: “Pauline’s story starkly demonstrates how ruthlessly scammers will exploit victims’ vulnerability to make their ill-gotten gains.

“We urge pension savers to protect themselves by knowing the warning signs and how to avoid and report a scam or fraud. The message is clear: stop, think and check who you are dealing with.”

How to spot and avoid a pension scam

The Pension Scams Action Group identifies six main types of pension scam, which can often be seen in combination with one another.   

 They are:  

• Pension-related investment fraud – this is where scammers entice savers into transferring their pension funds into unsuitable investments that may be false or high risk, typically by promising of high or guaranteed returns.   
• Pension liberation fraud – where scammers mislead savers into accessing their pension pots under the age of 55, unaware that they will incur a tax charge or potentially engage in tax evasion.
• Scam pension schemes and providers – these are schemes and providers set up to deceive victims, which either don’t exist, or exist but are committing fraud.  
• Clone firms – scam schemes and providers may use cloned websites and impersonations of existing legitimate brands to facilitate fraud. The Financial Conduct Authority maintains a growing list of clone firms.   
• Secondary scamming is also on the rise. This is where those who were already victims of a scam are given false offers to help them get their money back, leading to more devastation and deeper despair for victims.  
• Charging of high fees – this is where savers are persuaded into transfers that result in excessive costs and fees, often layered through unnecessarily complex business structures.

How to protect yourself

• Stop and think: reject unexpected offers and avoid hasty decisions. 
• If you get an unexpected call, text or email about your pension, it is safest to ignore it.  
• Always check who you are dealing with on the Financial Conduct Authority’s register of authorised firms and advisers.
• For more information on the common warning signs of scams and how to protect you, your family and friends, visit the StopThinkFraud website. 
• For free, impartial guidance about your pension, contact MoneyHelper.

What to do if you think you’ve been scammed 

If you suspect a scam, report it to Action Fraud online, or by calling 0300 123 2040. In Scotland, report to police by calling 101.