Types of pension scams

Find out about the common types of pension scams, how they work and how to avoid them - including early pension release and pension reviews scams.

Early pension release scams

You should be very wary of any scheme offering to help you release cash from your pension before you’re 55, as it’s almost certainly a scam.

This may also be called ‘pension liberation’ or a ‘pension loan’, as it’s often claimed you will borrow money from your pension fund.

But, generally, you can only take money from your pension when you’re 55 or older except in certain circumstances, like having a terminal illness. 

You could face a tax bill of 55%, plus other charges, on what you withdraw - and you could also lose all your money.

You will have to pay tax even if:

  • you didn’t realise you had broken the tax rules
  • you offer to put the money back in your pension
  • you have paid fees or charges to the company involved
  • you have spent all the money 

Taking cash from your pension before you’re 55 is unlikely to be in your interests.

If an FCA-authorised adviser recommends an early pension-release scheme, ask them to explain the full consequences and risks, and your other options.

These schemes can be illegal if you’re not told – or are misled – about the tax consequences and risks of entering into one.

If you intend to use the money in your pension to repay debts, you should contact a free debt adviser first to see what else you could do.

Taking money from your pension early might help your immediate debts, but it’s a very expensive way to free up money.

We are aware that scammers are targeting consumers searching for investments online, in particular through search engines like Google and Bing. Although some scammers offer high returns to tempt you into investing, they may also offer realistic returns to make their offer appear more legitimate. Those offering or promoting products or investment opportunities found through search engines are not necessarily authorised or regulated by the FCA. You can check the FCA Warning List for firms to avoid.

How early pension release works

Investors are often called out of the blue, but contact can also come by email, post, word of mouth or at a seminar or exhibition.

You could be offered a free pension review, then told you can take cash from your pension even though you’re under 55. This may be called a ‘loan’, ‘saving advance’ or ‘cashback’.

Your pension funds will be transferred from your legitimate pension scheme into one set up by the scam. This new scheme is often based abroad.

You may be ‘loaned’ an amount (often around half of your pension) with the company involved taking a fee, often as much as 30%. This fee is often unclear and doesn’t include the tax you will owe for accessing your pension early.

Any money remaining in the scheme after fees and tax are paid will then be invested in high-risk products or projects like overseas property developments – or it’s sometimes simply stolen outright.

Pension review scams

Pension review scams contact people unexpectedly, offering a free pension review. This could be a phone call, an email, text message or an offer in an online advert.

Most of the companies offering free pension reviews are not FCA authorised, but may falsely claim they are.

They may also claim that they don’t have to be FCA authorised as they aren’t providing the advice themselves.

Some firms may falsely claim to be acting on behalf of the FCA or represent the Government’s guidance service Pension Wise.

How pension review scams work

Free pension reviews are designed to persuade you to move money in your pension pot into a high-risk scheme.

Your pension pot is then invested in unusual investments such as overseas property, forestry, storage units, care homes, biofuels or businesses you may not be familiar with.

You may be promised guaranteed returns and/or a cash sum from your pension to tempt you to take up these offers.

Some of these investments are badly run, while others are outright scams.

As they’re promoted as long-term pension investments, it could be several years before you realise something is wrong.

How to protect yourself

If you get a cold call about your pension, the safest thing to do is hang up - it’s illegal and probably a scam. Report pension cold calls to the Information Commissioner’s Office (ICO).

Find out more about:

If you have any concerns at all about a potential scam, contact us immediately.

You can report the firm or scam to us by contacting our Consumer Helpline on 0800 111 6768 or using our reporting form

If you are unsure what to do, contact the Pensions Advisory Service for help.

Page updates

06/08/2020: Link changed