The regulator, the Financial Conduct Authority (FCA) is warning that pension holders are becoming vulnerable to ‘misdirection’ scams in light of the cost-of-living crisis.

It said 44% of savers admitted they would take up the offer of a free pension review. But this is a classic distraction technique used by criminals to con them into parting with their life savings.

Worries about not having enough money to last through retirement make savers vulnerable to pension scams. Of the 1,000 people surveyed, 17% of over 65s said they were still working just because they couldn’t afford to retire on their current pension pot.

More than a third (37%) said they weren’t confident they had enough in their pension pot to last for their whole retirement.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “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.”

‘Misdirection’ pension scams

So called ‘misdirection’ scams are a way of distracting victims, usually with the promise of higher returns on their pension investments, by preying on those with money concerns, and by building up trust.

Other common scams include offering free pension reviews and promising higher or guaranteed returns on a pension investment.

For those aged 55 and under, criminals may offer help in releasing money from a pension pot, and high-pressure sales tactics are also common.

Fraudsters also often use unusual investments, those which tend to be unregulated and high risk, and complicated structures where it’s often hard to access money.

Criminals target vulnerable savers

The warning comes as part of the FCA’s latest ‘ScamSmart’ campaign.

Of those asked by the FCA, 46% said they would be reassured if a potential scammer, who got in touch out of the blue, showed them third-party verification, such as a separate (fake) individual who would vouch for them.

While 31% said they would be reassured if they saw positive reviews despite the fact many criminals produce fake reviews and websites.

Scammers prey on vulnerable people and 54% of those asked said they weren’t confident in how to grow their savings while 38% were not confident in understanding how pensions work.

If you think you’ve been a victim of a pension scam, you should contact your pension provider straight away and report the fraud to the FCA scam smart website and to Action Fraud on 0300 123 2040.

More people accessing pensions early

The scam warning and research comes as the number of people accessing their pension pots early has surged.

Between 1 April and 30 June this year, £3.6bn of flexible pension withdrawals were made, a 23% rise on the same period in 2021, according to HMRC data.

More than 500,000 people accessed their pension early in this period with average withdrawals of £7,000.

In the 2021/22 tax year, £10.6bn was withdrawn, a rise from £9.6bn in 2019/20.

Tom Selby, head of retirement policy at AJ Bell, said: “As inflation tightens its grip on Brits’ finances and millions of households face up to the prospect of spiralling mortgage bills as interest rates rocket, it is inevitable scammers will increase their activity as they look to prey on rising vulnerability.

“Recently published data shows the number of savers accessing their retirement pots for the first time surged in 2021/22, a trend undoubtedly linked to the rising cost of living.

“This combination of vulnerability and rising numbers of people accessing their retirement pots is like blood in the water to fraudsters, who will often employ Derren Brown-style con tricks and misdirection to exploit people’s lack of confidence and understanding of pensions.”