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Beware of pension scams as reports of fraud soar during the COVID-19 pandemic

Dr Anna Tilba warns of the increased scams and fraud taking place against the background of the COVID-19 outbreak and suggests ways to protect ourselves.

As coronavirus sweeps across the globe, leaving a devastating trail of sickness, death and economic and financial instability, it is also creating favourable conditions for unscrupulous scammers who prey on vulnerable people and taking advantage of panic, uncertainty and financial strain.

In particular, fraudsters are trying to pressure people to transfer away their entire pension savings into ‘safer’ financial options in order to protect it from future economic depression, employer insolvency and/or to be able to access their retirement pots earlier in a time of need. Scammers would often charge extremely high transfer fees, leaving the retirement prospects of scam victims in ruins. 

Worryingly, according to the research[1] done by the Financial Conduct Authority and the Pensions Regulator last year, 23% of adults aged between 45 and 65 would answer a cold call and discuss their pension plans with a total stranger, despite cold calling being made illegal in 2019. This is even more worrying given the Action Fraud[2] report, documenting a 400% increase in scams relating to Coronavirus in March with total losses reaching £970,000. In addition to online shopping fraud, romance fraud, charity and lender fraud, some phishing emails contained investment schemes and pensions advice.

The UK Pension Regulator has released a special COVID-19 Update[3] for pension fund trustees. The update urged trustees to be more vigilant about pension scams where, due to the instability of current financial markets and a threat of employer bankruptcies (for example, rent-to-own giant BrightHouse[4].), members will be increasingly tempted to transfer their pension to ‘safe havens’. .

For people who find themselves thinking of transferring their pensions, the following tips may be useful in preventing financial fraud:

  • If the ‘opportunity’ comes out of the blue, offering stable and very high investment returns, it is probably a scam.
  • Do not talk to cold callers who want to discuss pension plans either by phone, text, email or social media.
  • Be extra vigilant if someone is offering a ‘free pensions advice’ or a ‘free pension review’ before the age of 55.
  • Do not be rushed into making important pensions decisions – pressure selling is a big red flag for financial scams.
  • Make sure your pensions advisors are regulated by the UK’s Financial Conduct Authority (FCA).

The Pension Regulator urges people to visit FCA’s ScamSmart website (https://www.fca.org.uk/scamsmart) and Money and Pension Service website (https://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/coronavirus-how-will-this-affect-my-pension-or-investments) for specific guidance relating to COVID-19. The Pensions Regulator is also launching new guidance[5] to help employers freeze their defined benefit obligations for three months to ease their financial burden in response to the economic fallout from COVID-19.