It’s this easy to fall for a pension scam

“Hello,” Paul said as he picked up the phone.

“Hi, this is Joe Bloggs from Your Money is Our Money, and I have important information about your pension that I think you’re really going to be pleased about.”

“Tell me more.”

“Did you know that you can take money out of your pension now? We have a special service that lets you borrow money from your pension, to spend however you like. And to top it off, there’s a great opportunity I can offer you today for the rest of the money. It’s a simple investment that is guaranteed to pay you at least 15% in 5 years – that’s guaranteed, remember. There are limited spaces available for this so to make sure you’re one of the lucky ones you need to act fast.”

“Brilliant, I could really do with the money actually. What do I need to do?”

“You just need to transfer your savings to our pension scheme, then you can start spending the money you want and wait for the big returns on the rest.”

“But I’m only 52, can I take money out already?”

“That’s perfectly fine, you don’t need to be retired to do this. Trust us, it’s all above board; lots of your peers are doing the same thing.”

Paul did what he was instructed.

And just like that, his money was gone.

How one phone call could cost you more than everything

What went wrong for Paul?

Ultimately, the scammer exploited two things that pension holders are allowed to do, in order to con Paul out of his money.

In the story, Paul was persuaded to send his savings to an unregulated pension. A pension transfer is allowed at any age, but by moving into an unregulated pension the government sees it as early, unauthorised access to the money.

To take money from your pension legitimately, you have to be at least 55 years old, regardless of whether or not you are retired. In Paul’s case, he was only 52. To stop people taking money earlier there is a tax bill of up to 70%1 of the amount accessed.

In a situation like Paul’s, the rest of the money that he thought stayed invested could disappear forever, leaving him with no savings.

The particularly nasty element to pension release scams is that they inevitably hurt people most in need of the money. A desperate situation can cloud our senses, hoping an opportunity will work out even when it all sounds too good to be true.

Perhaps the worst part is that there is often no need to place your trust in a scam, as it’s entirely legal to take money from a pension before you retire, without incurring any taxes or penalties.

Accessing your pension the right way

Legally, if you are at least 55 years old then you can take money out of an eligible pension. And 25% of the fund is completely tax free. The rest is taxed at your marginal rate, although it’s important to remember that tax depends on your personal circumstances and may change in the future.

If you are under 55 years of age, you can’t take money out of your pension yet. It’s such a black-and-white law that if someone approaches you to say that they can help you make withdrawals from a younger age, you know they’re operating illegally. It’s a big red flag warning you to run the other way.

If I’m not 55, what options do I have?

Until you reach the magic number, the money stays in your pension. In rare circumstances, such as terminal illness, HMRC may give permission to access the savings earlier. Without that permission, you can’t access that money safely and without owing a lot of tax.

I’m almost 55, is that good enough?

It’s not good enough to take money out, but you can get things moving so the money is ready for you as early as your 55th birthday.

Does it matter what type of pension I have?

Yes, it does. All private and most workplace pensions, including local government schemes, are eligible. Some workplace schemes operate differently, though, and to make withdrawals you would need to transfer the savings into a private pension. Depending on your circumstances, this may or may not be the best thing to do, so talking to a financial adviser first is essential.

Be scam-proof

Your pension looks after money that you’ve worked hard for over your working life, and seeing it lost to a scam can be devastating.

To help you keep your money, and your future, safe, we have a handy page that makes it easier to spot genuine, regulated advisers from those who just want to get their hands on your savings.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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