Regulator: Scammers continue to evolve, we will too

The updated Scorpion campaign warned consumers to be wary of offers to release some or all of their pension pot before the age of 55.

Such offers may mention ‘legal loopholes’, ‘cash incentives’ and ‘overseas investments’, and often do not fully explain tax rules that say if people access their pension before age 55, they will be subject to a tax charge.

While some people do understand what they are getting into, others do not appreciate the risks they are running.

We will continue to update this material because we want retirement savers – particularly those with limited financial knowledge – to be in a better position to protect themselves by recognising the hallmarks of a pension scam.

Disruption has proved effective at the point of transfer and we continue to urge pension trustees, administrators and providers to include the Scorpion material in members’ annual statements, and to anyone who requests a transfer in the meantime.

We urge members to look out for signs of scams and to seriously consider whether to move their pension pot from their existing scheme to a new one unless they are certain it is legitimate.

Despite pension reforms, the law will remain that if people access their pension pot before the age of 55, they will normally have to pay a tax charge, effectively to repay the tax relief they received. This tax charge can be up to 55 per cent of the original fund. 

Even when people access their pension pot after 55, they will still be subject to the marginal income tax rate.

Recent rulings from the pensions ombudsman on complaints about blocked transfers concluded schemes and pension providers “find themselves in a highly unenviable position” when asked to transfer funds to schemes about which they have suspicions.

The rulings therefore underpin the messages in our Scorpion campaign, and the importance for trustees and members to be vigilant. The people behind pension scams are often agile, sophisticated and organised. 

Whatever the law is, they will seek to exploit it – so we expect scams to continue to evolve.

The regulator and other agencies involved in the campaign are alive to such risks and we will continue to liaise with them to ensure individuals receive the information they need to protect themselves from scams.

Andrew Warwick-Thompson is executive director for DC, governance and administration at the Pensions Regulator