Pensions scams and liberation fraud

Published  01 November 2022
   5 min read

Pension scams have evolved over recent years and adapted to the obstacles put in place by pension providers and their regulators.

Key facts

Usual signs of a scam

  • Contact out of the blue.
  • Promises of high /guaranteed returns.
  • Free pension reviews.
  • Access to your pension before age 55 or age 57 after 6 April 2028.
  • Pressure to act quickly.
  • The firm facilitating the scam is not a FCA regulated firm.
  • If a SSAS is being used it’s unlikely the scammer will insist on being the independent trustee.

A brief history of pension scams

The original pension scam involved setting up a large occupational pension scheme and inviting people to join. They would then be offered a “loan” secured against the pension. The payment would be an unauthorised payment and tax charges would be applied by HMRC. Unfortunately, by the time the tax charge appeared, the individual had spent their “loan” and the scheme normally didn’t have any assets. The problem with this type of scam is the scammer had to set up the scheme and take on the trustee duties, so when/if they get caught they could be fined or jailed.

From the scammers perspective there are two problems with this type of scam, the scammer has to give some of the funds to the individual and the scammer could be fined or jailed. Neither of those will appeal to the scammers. Scams evolved so that both of these problems can be avoided.

A newer model involves setting up a company for the individual being scammed; this will be a dormant company as it will never actually trade. They then set up a small self-administered scheme (SSAS) with the individual being scammed as the only trustee. All of their pension benefits are transferred to this new scheme, safe from interference from genuine pension providers. The charges for administrating the scheme will be high. The individual will then be enticed into investing in a “too good to be true” investment, often overseas. This investment will have a high guaranteed return, normally at least 7% per year. The paper “return” on the investment will normally be even higher than that.

The reason for this is twofold, it ensures that every available penny the individual has is put into the plan, particularly if they are approaching 55 (or 57 from 6 April 2028) years old. They will also tell their friends, increasing the pool of people that could be scammed.

As the investment is unregulated there will be no compensation if it fails. Although it looks like the scammer has given advice on setting up the SSAS and the investment it will be almost impossible to prove either in a court. Actually finding and getting the scammers to a court would be similarly difficult.

Unsurprisingly, it is also very difficult for the individual to cash in their investments or get their money out of the scheme. The “investment fund” if it ever existed will be depleted by charges and fees until it is valueless. Most importantly for the scammer the amount of money paid in is maximised and none of the money is wasted by paying it to the individual being scammed.

It’s worth noting that SSASs are a valid pension option for a company to use and are promoted by genuine SSAS providers and administrators. However, these companies usually differentiate themselves by insisting on providing professional trustee services to the scheme. Scammers never offer this service.

Scammers have also developed their approaches, using social media (for example, Facebook and LinkedIn) to target victims, as well as by cold calling and “factory-gating” (approaching people outside their workplace) to contact those likely to have access to significant pension savings. Scams have also broadened to include “secondary scamming", where someone who has been scammed is approached by a third party, often a claims management company, which, for a fee, offer to attempt to recover the lost money. This leaves the individual even further out of pocket.

What can be done to stop this?

Steps have been taken to address pension scams:

  • New rules are in place to stop new schemes being set up for dormant employers.
  • The ban on cold calling is in place, which is the normal route for instigating a scam.
  • The Financial Conduct Authority (FCA), the Pensions Regulator (TPR) and the MoneyHelper have all produced material on pension scams, see below in further information.
  • The Pension Scams Industry Group has produced ‘Combatting pension scams: a code of good practice’, which providers use to identify potential scams.
  • The FCA are asking people to ‘flip the context’ if they are approached online about their pension.  This means they should imagine the same offer in person, in an everyday, offline setting like a trip to the shops or an afternoon in the pub. Research shows individuals are nine times more likely to accept advice from someone online than they would from a stranger met in person, despite this being a tell-tale sign of a scam.

Can scams actually be stopped?

Unfortunately, the answer is no. As with any business if something affects their operating model the company reacts and adjusts so it can continue to trade and make a profit. Scammers are no different. If they can’t steal money from a pension they will just move onto other kinds of savings, such as ISAs.

So it is essential that consumers are aware of scams and are regularly reminded to be wary.

Usual signs of a scam

  • Contact out of the blue.
  • Promises of high /guaranteed returns.
  • Free pension reviews.
  • Access to your pension before age 55 (or 57 from 6 April 2028).
  • Pressure to act quickly.
  • The firm facilitating the scam is not a FCA regulated firm.
  • If a SSAS is being used it’s unlikely the scammer will insist on being the independent trustee.

Further information

The FCA and the TPR have a campaign warning people against pension scams. As well as their TV adverts they have produced a poster and leaflet.

The FCA has created a number of webpages which can be used to check an investment or pension opportunity and avoid scams. They also provide details on how various different scams work.

The FCA has also produced a number of images relating to pension scams and football

The Financial Services Register is a public record that shows details of firms, individuals and other bodies that are, or have been, regulated by the Prudential Regulation Authority and/or the FCA.

The TPR and MoneyHelper have previously published guidance on liberation/scams:

The FCA and TPR periodically launch a joint campaign highlighting pension scams to the public.

They have also produced a ScamSmart pension scams article that can be used in your printed publications, blogs, websites or any customer communications. The FCA/TPR are happy for people to cut down the length of the article to fit their purpose.

The House of Commons library have produced a briefing paper


The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.