Pension scam victims are being caught out by fraudsters when exercising their pension freedoms when it may not be in their best interest, the Financial Conduct Authority (FCA) has warned.

Speaking at the Cambridge Economic Crime Symposium, FCA chair, Charles Randell, said that a number of skimming and scamming victims had been persuaded to make poor decisions when transferring out of a defined benefit scheme.

Although Randell admitted the regulator did not know exactly how many people had been scammed into transferring their savings to fraudsters, “it is clear that it could be a large number”.

He continued: “Exercising this [pension] freedom is unlikely to be in the interests of the majority of pension scheme members.

“I don’t express a view on the wisdom of the pension freedom policy as such. But the House of Commons Work & Pensions Committee has asked challenging questions about the execution of this policy.

“It was implemented in 2015, relatively soon after it was announced in 2014, but responses to the risk of skimming and scamming are continuing to be developed.”

Randell added that policymakers, including the FCA need to learn “lessons for the future” from their experiences with pension freedoms, and that similar major changes to policy need a lengthy period of planning and testing, so safeguards against scamming can be implemented before it is launched.

Since the ban on cold calling came into effect earlier this year (2019), the number of reported scams has decreased but reports of other scams, such as crypto and forex investment scams, are “rapidly increasing”, according to Randell.

He also warned that unsuitable self-invested pension plan (Sipp) investments were on the rise.

“We’ve made it clear that the providers of Sipp wrappers need to exercise due diligence on the investments accepted into the plans,” he added.

“But I believe it’s right to question why the taxpayer should foot part of the bill for these investments through pension tax relief.

"This is intended to reduce the burden on future generations of caring for current savers, but it may mean that current savers can be persuaded to invest in high risk unregulated investments.”

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