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Too good to be true? - Understanding consumer experience of pension scams a year on from pension freedoms

31 March 2016

Too Good to be True? report [ 1 mb]

April 2015 saw the introduction of ‘the biggest change in a century’ to private pensions - known as pension freedoms (HM Treasury, Freedom and choice in pensions: government response to the consultation , 2014). These freedoms give consumers greater choice over how to access their pension savings by removing the effective requirement to buy a guaranteed income product.

As a charity that helps consumers to find the best solutions for their personal circumstances, Citizens Advice welcomes these new freedoms. However, we also recognise that flexibility could expose consumers to new scam risks. Our own data suggests that those eligible to use pension freedoms are more vulnerable: over 55s are 70% more likely than our overall client base to visit us for help with fraud and scams (last year Citizens Advice helped people with over 7,000 scam and fraud issues. Citizens Advice Management Information 2014/15).

In addition to significant financial losses for consumers, scams can pose a risk to wider confidence in the pension system. This can affect consumers’ saving levels, investment choices, use of pension freedoms and use of financial guidance or advice.

"Too Good to be True?" adds to a body of evidence on pension scams developed by Citizens Advice since April 2015 (Citizens Advice, Consumer experience of pension and pensioner scams before April 2015 [ 0.65 mb], April 2015. Citizens Advice, People targeted repeatedly with pension scams, say Citizens Advice, August 2015). It focuses upon the developing nature of pension scams and whether consumers are equipped to identify them. We have four key findings:

  • Consumers are receiving high levels of unsolicited calls. We calculate that 10.9 million consumers have received unsolicited contact about their pension since April 2015. This includes 2.4 million consumers aged 55-64, who are those most likely to be interested in pension freedoms (Based on ONS population estimates and polling by Populus for Citizens Advice. ).

  • Many people are being offered pension reviews or advice. This represents a focus shift from financial returns to other services. We found that 8.4 million consumers have been offered unsolicited pension advice or reviews in the last year. This poses a genuine risk of reducing confidence in legitimate financial advisers.

  • Most consumers are unable to spot scam warning signs. Our research reveals an alarming lack of knowledge amongst consumers. In an experiment in which research participants were shown mock advice adverts, almost nine in ten (88%) consumers selected a pension advice offer containing pension scam warning signs.

  • Consumers are most likely to turn to informal sources to check for a scam. With consumers struggling to identify pension scams, it is increasingly important that they can find reliable information on offers. We found that the three top sources for checking pension offers are informal such as asking family or checking a company’s website, but our experience suggests that these are not always reliable.

This research show that more action is needed to reduce consumer detriment through pension scams. Citizens Advice recommends:

  1. Pension firms should work with Project Bloom members to continue promoting awareness of scam warning signs to consumers.

  2. Extend the Financial Conduct Authority (FCA) ScamSmart portal to include scam warnings for possible advice/review scams.

  3. Bodies such as Action Fraud and the Information Commissioner’s Office should continue monitoring levels and types of pension contact and respond to emerging scams/trends.

  4. Financial advisers should avoid using lead generators who make unsolicited calls or use high pressure tactics.