FCA research: A quarter of consumers would withdraw pension savings earlier to cover cost of living – making them vulnerable to scammer ‘misdirection’

With the cost of living impact deepening, the FCA launches its latest ScamSmart campaign aimed at giving consumers the knowledge and tools to avoid pension scams.

  • A quarter of consumers would withdraw pension savings to cover the cost of living, making them vulnerable to ‘misdirection’ scam tactics
  • Just as with magic tricks, scammers are distracting victims with the promise of higher returns, preying on money concerns, and building up trust
  • One woman was scammed out of £45,000 while trying to build her retirement savings
  • The FCA’s latest ScamSmart campaign aims to provide consumers with the knowledge and tools to avoid pension scams

New research from the FCA has found that a quarter (25%) of consumers would consider withdrawing money from their pension earlier than planned to cover the cost of living. This is supported by retirement income market data which showed that the number of pension plans accessed for the first time in 2021/22 increased by 18% to 705,666 compared to 2020/21 (596,080).

Preying on money worries and lack of confidence in pension savings to last through retirement, the FCA is warning that scammers are using ‘misdirection’ tactics to con victims. Just as with magic tricks – where magicians use misdirection to divert attention while the trick is carried out – emerging scam tactics are following the same pattern.

The FCA surveyed over 1,000 people aged 40 and over with workplace and private pensions to uncover how this could impact them:

First comes the distraction

Research shows 44% would take up the offer of a free pension review – a classic distraction tactic. Concerns about having enough money to last throughout their retirement make them vulnerable to the lure of boosting pension returns: 17% of over 65s are still in work simply because they cannot afford to retire on their current pension, and over a third (37%), are not confident they have enough in their pension to last their whole retirement.

Many would also be reassured if a potential scammer getting in touch out of the blue could show them third-party verification – such as a separate individual who can (falsely) vouch for them, (46%) and had positive reviews of their service (31%), despite the fact scammers are becoming increasingly skilled at producing fake websites and brochures [as a distraction] when carrying out their ‘trick’.

Second comes the trick 

Here, scammers will prey on their victims’ misunderstanding of how pension savings work to secure their hard-earned money: over half (54%) said they did not feel confident in how to grow their pot, and 38% do not feel confident in understanding how pensions work.

Pauline Padden, 58, was looking after her terminally ill mother when she received a text message offering her a better deal on her pension and some cash in return for transferring her pot. Pauline was promised higher returns on her pension savings if she invested in a long-term hotel build in the Caribbean. Six months later, Pauline was devastated to receive a letter explaining she had been the victim of a scam and had lost £45,000 in pension savings.

Pauline Padden said: "At the time I was incredibly vulnerable. I was busy looking after my terminally ill mother and my 3 children. The scammers capitalised on my vulnerability and robbed me of the prospect of ever retiring. I was only trying to make my retirement easier but instead these scammers ruined my life.

"I still don’t know if I’m ever going to be able to get my savings back and will probably have to keep working until I am no longer fit to do so. I just hope I can help to raise awareness of the signs to look out for so that others never have to go through what I’ve had to deal with over the last 9 years."

The FCA is calling on all consumers to be ScamSmart and check the information on the ScamSmart website, including the Warning List, before making any decision about their pension. This will help identify any firms that are actively running scams, or flag to consumers the signs to look out for to avoid being scammed.

Mark Steward, Executive Director of Enforcement and Market Oversight, 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.

"ScamSmart contains important information to avoid being tricked by scammers. Visit ScamSmart to protect yourself before the sleight of hand can begin."

If a consumer deals with an unauthorised firm, they will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

The most commonly used tactics of pension scammers to be aware of include:

  • The offer of a free pension review
  • Higher returns, where they will guarantee they can get you better returns on your pension savings
  • Help to release cash from your pension even though you’re under 55. An offer to release funds before age 55 is highly likely to be a scam, and has major tax implications
  • High-pressure sales tactics, where the scammers may try to pressure you with ‘time-limited offers’ or even send a courier to your door to wait while you sign documents
  • Unusual investments – which tend to be unregulated and high risk, and may be difficult to sell if you need access to your money
  • Complicated structures where it isn’t clear where your money will end up
  • Arrangements where there are several parties involved (some of which may be based overseas) all taking a fee, which means the total amount deducted from your pension is significant
  • Long-term pension investments – which mean it could be several years before you realise something is wrong

Notes to editors

  1. The Financial Conduct Authority’s consumer research was conducted by Opinium, with 1,009 UK adults aged 40 and over with a workplace or private pension.