FCA warns over Derren Brown-style ‘misdirection’ scams

A quarter of savers would withdraw pension savings to cover the cost of living, making them vulnerable to scammers, the FCA warns
Official data backs up this concern, with the number of pension plans accessed for the first time in 2021/22 rising 18%, from 596,080 to 705,666
A staggering £3.6 billion of flexible pension withdrawals were made between 1 April and 30 June 2022, according to HMRC – a 23% increase compared to the same period in 2021
Savers warned to beware of ‘Derren Brown-style’ misdirection tactics employed by fraudsters targeting their pension pots

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.

Anatomy of a confidence trick

The more people are aware of the kind of tricks financial scammers use, the less likely they will be to fall for these sorts of tactics.

The con often begins with a distraction, such as offering a ‘free pension review’. Worryingly, almost half (44%) of over 40s with a pension would take up this offer, opening the door for fraudsters to build trust and set the foundations for the con.

This trust can be fostered through providing fake third-party verifications, which all-too-often results in people dropping their guard when speaking to a stranger about their pension.

This is compounded by the fact many people are not confident they have enough in their retirement pot and so may be prone to fraudsters claiming to offer ultra-high investment returns.

Having built trust and hawked their investment ‘opportunity’, fraudsters will convince their victim to give them large chunks of their retirement cash. Often these investments will be entirely fictitious, meaning savers handing over their money risk losing everything.

The most commonly used tactics of pension scammers:

the offer of a free pension review
promises of higher returns, where fraudsters say they will guarantee they can get you better returns on your pension savings
help to release cash from your pension even though you’re under 55. An offer to release funds before age 55 is highly likely to be a scam, and will result in you being hit with an eye-watering tax penalty from HMRC
high-pressure sales tactics, where the scammers may try to pressure you with ‘time-limited offers’ or even send a courier to your door to wait while you sign documents
unusual investments – these tend to be unregulated and high risk, and may be difficult to sell if you need access to your money
complicated structures where it isn’t clear where your money will end up
arrangements where there are several parties involved (some of which may be based overseas) all taking a fee, which means the total amount deducted from your pension is significant
long-term pension investments – which mean it could be several years before you realise something is wrong

Source: FCA

Tom Selby

Director of Public Policy

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014.

Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.