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Are consumers in danger of scamming themselves?

Aside from criminal scams, pension freedoms have introduced so much complexity and risks that there is a danger of consumers scamming themselves, says Andrew Pennie, head of Pathways, Intelligent Pensions. 

Traditional pension communication approaches are not working and people considering their retirement options are confused about the new pension freedoms, leading many to make poor decisions or worse still, fall foul of the ever increasing number of pension scams.

Campaigns being run by organisations, such as the Citizens Advice Bureau’s (CAB) ‘Scams Awareness Month’, are helping to highlight the issues consumers are currently facing.

With a large number of people choosing to cash in their pension, the smell of this new money has attracted scammers. It is estimated 10.9m UK consumers have received unsolicited contact about their pension since April 2015. It is important consumers do their research to ensure they don’t fall foul of the ever-increasing number of sophisticated and plausible scams that are out there. Cold calling, time-limited offers, free pension reviews and ‘too good to be true’ investment returns are all common scam tactics to be wary of; and make your clients wary of!

The CAB did some research on pension scams with 2,000 consumers. 76% of respondents were confident they would be able to spot a scam and were asked which of the following adverts they would choose to contact:


The results were concerning with 24% opting for the first advert and a whopping 64% opting for the second advert – both of which contain strong scam messages. Only 12% opted for the legitimate third advert.


As well as being wary of these pension scams, consumers also need to be wary of scamming themselves. The pension freedoms have given so much freedom and choice but these new rules also come with increased complexity and risks. It’s easy for mistakes to be made which can be very expensive and often irreversible. Just over a year into the pension freedoms and some people are already finding this out the hard way.

The safest way to avoid scams is, of course, for people to take FCA regulated advice. Not everyone will need advice to achieve the best retirement outcome but many will – particularly those using drawdown. The advice industry can offer a range of options – for every budget – delivered by pension specialists, and providing the reassurance and peace of mind of full regulatory protection. Regulated advice needs to become the core focus for pension freedoms support and it needs to be delivered in the pre-retirement years to help people get on the right track and take corrective action where needed.

Employers now have a £500 HMRC allowance to provide (or facilitate) pension and retirement advice for their employees and by delivering FCA regulated advice, members will have the best opportunity of achieving a good retirement outcome with the right to recourse should the advice prove to be poor and result in financial loss.

The current major drawback with regulated advice is that most people have a huge reluctance to pay for it, either through mistrust of the industry or a lack of awareness of the benefits advice could deliver. The Financial Advice Market Review (FAMR) findings indicated 14% would be willing to pay between £200 and £500 for advice yet HSBC research showed between 30 and 50% actually want advice but are put off by price.

As well as price, regulated advice has a number of other challenges – accessibility, trust and knowledge will also need to be tackled if it is to become the go-to solution. These can be overcome, and they need to be, if we are to offer people help to ensure they make the right retirement planning choices.

Case study: Mr. P

One of the tricks being used by pension scammers is tricking ordinary investors into taking on high risk investments. Mr. P was a case referred to us recently albeit unfortunately too late to prevent him making a big mistake.

Mr. P had retired age 64 from his job at an electronics firm. He had a work pension, and a paid-up pension fund of about £23,000. He had previous experience of investing, and had built up a small portfolio of the usual ISAs and stocks & shares.

Last year Mr. P was sent a letter by a company offering a pension review and outlining an investment opportunity to buy carbon credits. He had already decided to take his paid-up pension and use some of it for personal reasons and invest the remaining £15,000 in the carbon credits where the company had promised him an attractive guaranteed return.

About six months later, he found out that the investment company had gone into liquidation. Naturally, he checked on his investments only to find they were now worth a quarter of what he had originally invested. He considered selling the credits, but was unable to find a way to do this and was therefore effectively stuck with holding the credits.

At this time, it appears Mr P has no method of recovering his investment and has no right of recourse. The carbon credit investment offered to Mr P is an unregulated collective investment and therefore doesn’t have any regulatory protection should anything go wrong. There are rules about the promotion of unregulated investments which means they should only be offered to sophisticated and high new worth investors. Despite Mr P’s other investments he would not fit into these categories.

Despite the rules, there is evidence that ordinary members of the public are being targeted with unregulated investments by scammers looking to defraud people of their pension savings. In addition to carbon credits, we have seen unregulated investments targeted at UK pension holders in overseas property, land banks, fine wines and even hospital car parks.

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