Protecting pension savers—five years on from the pension freedoms: Pension scams Contents


Most of us are at risk of becoming the victim of a pension scam. The pension freedoms introduced in 2015 gave people more choice in how they use their pension savings to meet their own needs. But by offering pension savers access to a much wider range of investments, the freedoms also put people at risk of a much wider range of scams and financial fraud. More than five years on from the introduction of the pension freedoms, the Government and the regulators are still putting in place the necessary support framework to tackle scams. Our report calls on them to act quickly and decisively to protect pension savers.

Recording and reporting

Over £30 million lost to pension scammers was reported to Action Fraud between 2017 and August 2020. This is the most commonly cited figure for the scale of pension scamming, but there is no doubt that it is a substantial underestimate. The Pension Scams Industry Group, a voluntary body set up to tackle pension scams, estimates that £10 billion has been lost by 40,000 people to pension scams since 2015. The situation is likely to be getting worse rather than better: scammers in all industries look to take advantage of new situations, and covid-19 potentially offered them new opportunities.

Many victims of pension scams never report that they have been scammed. Others report a scam only a long time after it has taken place. Scam victims reasonably expect that, when they do make a report to Action Fraud, it will be acted upon. They are understandably left disillusioned when this does not happen. A 2019 investigation by the Times found serious failings at Action Fraud, the UK’s national reporting centre for fraud and cybercrime. While representatives of Action Fraud were able to speak positively about improvements made to the service since 2019, the investigation, a failure to manage victims’ expectations and a lack of action on cases has left Action Fraud with a tattered reputation. The City of London Police should make annual reports to Parliament on efforts to repair it.

The pensions industry itself has the potential to be a valuable source of information about scams. Although we were told that the industry should be reporting scam activity to Action Fraud, representatives said that it is unclear where or how the industry should report pension scams and suspected scams and that they are sometimes discouraged from doing so. Action Fraud should make it clear that the industry should make reports of scam activity to Action Fraud and should provide clear guidance and an effective tool for the industry to do so.


The Pension Schemes Act 2021 will allow people’s statutory right to transfer from their pension scheme to be restricted where there are signs of a pension scam. Regulations will be developed by DWP and are expected to be in place later this year. The regulations will identify potential indicators of a pension scam which would raise either red or amber flags. A red flag would require trustees to block a transfer and an amber flag would allow them to pause a transfer until a person has received appropriate guidance. This will be a significant step in preventing pension transfer scams. DWP should publish a review within 18 months of the policy being operational, to allow any necessary legislative changes to be made this Parliament.

The move online by pension scammers has been a recurring theme of our inquiry. Regulators appear powerless to hold online firms to account for hosting scam advertisements in the same way they would be able to for traditional media. Scammers using paid for online advertisements appear to be particularly hard to tackle without the co-operation of the hosting firm. It is immoral that tech firms such as Google are accepting payment to advertise scams, and then further payment from regulators to warn about the scam. It should not require legislative solutions to deter global firms from benefitting from the proceeds of crime, but unfortunately legislation is clearly needed. We recommend that, in order to create parity between traditional media, such as TV and newspapers, and new media, including search engines and social networks, paid-for advertising on online platforms should be covered by the regulatory framework for financial promotions. This would require online publishers to ensure that any financial promotion which they communicate has been approved by an authorised person or is exempted from the financial promotions regime.

On 15 December 2020 the Government announced its decision to bring forward legislation to tackle online harms—the Online Safety Bill—but also signalled its intent to exclude financial harms from the scope of that legislation. It is notable that several public bodies, including the Financial Conduct Authority and National Economic Crime Centre, are openly saying that there is a better approach for the Government to take than the one it has chosen. The Financial Services Compensation Scheme has gone further still, calling explicitly for the Bill to include powers to tackle online scams. The forthcoming Online Safety Bill should legislate against online investment fraud.


There are many bodies with potentially overlapping enforcement responsibilities relating to pension scams. The fragmentation of reporting, investigation and enforcement has made tackling pension scams more difficult. The establishment in 2012 of Project Bloom, the multi-agency task force set up to tackle pension fraud was an attempt to overcome this. We support the creation of Project Bloom, but it has become clear that it does not have the capacity in its current form to achieve its objectives. It must now be given a statutory remit, an appropriate name—we propose “the Pension Scams Centre”—dedicated funding, and the staffing to manage a pension scams intelligence database alongside law enforcement. To avoid the risks of creating yet another regulatory body in an already crowded field, we recommend that the new Pension Scams Centre should have a board made up of representatives of Project Bloom’s current member organisations, with oversight of a pension scams hub. The hub’s responsibilities would include facilitating intelligence-sharing within the pensions industry and between regulatory bodies.

Supporting pension scam victims

As well as ruining someone’s financial future, a pension scam can leave them with large unexpected tax bills. Pension liberation scams often involve scammers claiming that there are legal loopholes, such as loans or cash incentives, which can allow a person to access their pension early, before the age of 55, without the victim having to pay tax. This is not correct. Someone who accesses their pension early faces tax charges of 55%. These penalties are intended to act as a deterrent, but do not work in cases where a scammer has convinced a potential victim that the charge will not apply. HMRC has been described as “unrelenting and uncompromising” in the pursuit of these charges. While the position taken by HMRC is legally correct, it has often lacked empathy or understanding of the impact that its demands have on victims. HM Treasury should recognise that, in some clearly defined circumstances, where the saver has been the victim of a crime and made no financial gain from the early access, it may not be in the public interest to demand payment of tax due.

The FCA told us that there have been a very large number of prosecutions involving scams and unauthorised business. We do not agree with this assessment. Its own figures—revealed only through Freedom of Information requests—show that there were just 25 convictions. We have heard numerous criticisms that the FCA is not effective in stopping scams, punishing scammers or retrieving scam proceeds. There is a compelling case for a much more ambitious approach. We recommend that the FCA publish a costed plan to raise its game in tackling scams.

Being a victim of any fraud can be devastating. Pension scams often involve the loss of a lifetime’s savings and many of the plans people have made for their later life. Victims of pension scams suffer lifelong financial harm and potential lifelong impact on their mental health. DWP should ensure that all pension scam victims are offered, and encouraged to take, support for both the financial harm and psychological distress caused by pension scams.

Published: 28 March 2021 Site information    Accessibility statement