With the cost of living rising, many of us are looking closer at our pensions and considering our options. However, this increased interest comes with a fraudster warning, as the Financial Conduct Authority (FCA) reveals the most common scam tactics used and how to avoid them.

Here’s what to watch out for (according to the FCA website):

Pension review scams

If you’re contacted unexpectedly and offered a free pension review, it’s likely to be a scam. Professional advice on pensions isn’t free.

Most of the companies offering free pension reviews aren’t authorised, but many falsely claim they are. They may also claim that they don’t have to be authorised, as they aren’t providing the advice themselves.

Some scammers may even say they’re acting on behalf of the FCA or MoneyHelper.

How pension review scams work

Free pension reviews are designed to persuade you to move money from your pension pot into a high-risk scheme.

Your pension pot is then invested in unusual investments such as overseas property, forestry, storage units, care homes, biofuels or businesses you may not be familiar with.

You may be promised guaranteed returns or cash from your pension to tempt you to take up these offers.

Some of these investments are badly run, while others are outright scams.

As they’re promoted as long-term pension investments, it could be several years before you realise something is wrong.

Early pension release scams

You should be very wary of any scheme offering to help you release cash from your pension before you’re 55. It’s almost certainly a scam.

Generally, you can only take money from your pension when you’re 55 or older except in certain cases, such as poor health. This will increase to 57 from 2028.

How early pension release scams work

Offers to access your pension early may be called 'pension liberation' or a 'pension loan', as the scammers often claim you can borrow money from your pension fund.

If you take up the offer, your pension funds will be transferred into a scheme set up by the scam, which will often be based abroad.

You may be 'loaned' an amount (often around half of your pension), with the company involved taking a fee, perhaps as much as 30%.

You could also face a tax bill of 55% on what you withdraw, even if:

• you didn’t realise you’d broken the tax rules
• you put the money back in your pension
• you’ve paid fees or charges to the company involved
• you’ve spent all the money 

Once you’ve paid the fees and tax, any money remaining will then be invested in high-risk products or projects, like overseas property developments.

Sometimes it’s simply stolen outright.

Risks of accessing your pension early

Taking cash from your pension before you’re 55 is unlikely to be in your best interests.

If an FCA-authorised adviser recommends an early pension-release scheme, ask them to explain the full consequences and risks, and your other options.

These schemes can be illegal if you’re not told – or are misled – about the tax you’ll pay and the risks of accessing your pension early.

It’s important to keep in mind that if the business you’re dealing with isn’t authorised by the Financial Conduct Authority (FCA), you won’t be entitled to any protection from the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS) in the event of any unforeseen circumstances.

How to avoid being scammed

There are many steps you can take to reduce the risk of falling victim to scams. As advised by the FCA these include:

• If you get a call out of the blue (a cold call) about your pension, the safest thing to do is hang up. It’s illegal and probably a scam. If you get offers via email or text, you should simply ignore them.
• Report pension cold calls to the Information Commissioner’s Office (ICO).
• If you’re thinking about changing your pension arrangements, you should get financial guidance or advice beforehand.
• If you want to find an adviser, make sure they’re authorised on the FCA Register.
• You can also check the ScamSmart website, including the FCA's Warning List, before making any decisions about your pension.
• Don't be rushed or pressured. Take your time to make all the checks you need to make sure that a firm is genuine and an offer is good.

Report a pension scam 

If you believe you’ve fallen victim to fraud or if you suspect that you’ve been targeted by a fraudster you should contact Action Fraud.

If you're considering using your pension to repay debts, it's important to seek advice from a debt adviser first to understand your options. You can use Money Helper’s debt advice locator tool to find free debt advice near you.

You can also read Money Saving Expert’s Stop Scams guide for more information on how to protect yourself.