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The cost of not spotting a pension fraud

Updated 23 November 2022

4min read

Nick Green
Financial Journalist

The cost of retirement advice is generally around 1 to 2 per cent of a pension pot. The cost of a pension scam may be 100 per cent or even more. The latest research into the dangers of pension fraud should encourage everyone to sit down and do the maths.


A recent study by Citizens Advice turned up some truly scary results. In a survey of 2,000 people, three out of four said they were confident they could spot a pension scam. The same 2,000 people were then shown three mock-up adverts for financial advice – two of which were scams – and asked to say which advert they would trust in a real-life situation. Nine out of ten people chose a scam. Even among those who had said they were confident they could spot a fraud, 87 per cent still fell for a scam advert.

The research turns up two very stark and worrying conclusions, namely:

  1. Most people think they would spot a fraud.
  2. Most people can’t.

So what exactly did they fall for – and why? Let’s take a look.

Would you have spotted it?

Here are the three adverts shown to the people in the survey.

CAB_fraud graphic

Source: Citizens Advice

Advert B was the favourite, chosen by 64 per cent of the 2,000 participants, followed by advert A, chosen by 24 per cent. Just 12 per cent chose advert C, the genuine offer.

So why did so many get it wrong?

This is the really worrying part. It’s not hard to see what makes B and A so much more appealing (at first glance) than C. Advert A offers a 10 per cent return on investments, while B offers a whopping 15 per cent. By contrast, C offers just 5 per cent.

Yes – incredible as it may seem, participants seemed to make their choice based on how much the offer promised them, without questioning whether or not the offer might be genuine. People are shown to place more trust in information that appears to benefit them. In other words, they believe what they want to believe. Even when consciously looking out for a fraud (as most of these participants presumably were) the vast majority were still lured by a shiny prize.

What else affected people’s judgement?

The offer of unrealistically high returns wasn’t the only thing that led people astray. Advert A makes the claim ‘Experts in Defined Contribution pensions’ – a fairly meaningless statement, like a plumber saying he is an ‘expert in taps’. However, Advert B assures us the adviser is ‘Approved by Government Pensions Department’. Unfortunately, although there is indeed a Pension Service, and a Department for Work and Pensions, there is no such beast as the ‘Government Pensions Department’. Anyone in doubt could check this in five seconds with a simple web search – but it seems very few would think to do so.

By contrast, Advert C says its adviser is Financial Conduct Authority authorised. The FCA is of course a real regulator – so it takes just a moment to go to its Financial Services Register and check whether or not an adviser is really listed there.

Other details in the fake adverts should have served as huge warning beacons: ‘Paperwork delivered to your door by courier’ and ‘Access to your pension before you turn 55’ are classic hallmarks of a scam. But participants either didn’t realise this, or were distracted by the promise of high returns.

Was that all?

One other significant detail may be to blame for so many people being taken in. Advert A promises ‘Free financial advice’, while Advert B offers ‘A free pension review’. Free pension reviews are available from many legitimate advisers, as part of an introduction to advice, so this alone shouldn’t sound alarm bells. However, any promise of ‘free advice’ should be treated with suspicion.

Now the big question: why did barely one in ten survey participants choose the genuine advert? It’s not hard to guess. Advert C offers ‘A low fee of £1,000’. At first glance this might be off-putting, compared to the other two offers of ‘free’ advice. But should it be?

The cost of advice vs the cost of fraud

Though broadly representative, the example in the Citizens Advice fraud test was necessarily simplified. The true cost of advice actually varies considerably depending on what the adviser is doing for you. According to the Cost of Advice guide from Unbiased, £1,000 would typically buy you retirement advice on a £100,000 pension pot, assuming you already knew how you wanted to take your pension, and only wanted the adviser to find you the best products and put your plans into effect. If, on the other hand, you wanted the adviser to give you full advice on your pension options first, then the average fee would be £2,000.

Generally speaking, the cost of advice may be between 1 and 2 per cent of your pension pot. For larger pension pots the percentage tends to be lower, and the cost is also lower for an execution-only service. To give another example, the average cost of an execution-only service on a £200,000 pension pot is only around £1,100 – or just over 0.5 per cent of the pot value. (To put this in context, the average estate agent’s fee in the UK is around 1.8 per cent of the property’s value.)

The cost of fraud

So much for the cost of advice – what about the cost of falling for a scam? The answer is that there’s no upper limit here. Trusting your pension savings to an unregulated third party (whether a genuine fraudster or just someone who’s unqualified) could potentially cost you your entire pension pot – or even more. For instance, if someone offers you access to your pension before you are 55, this is illegal – so you may not only lose the full amount, but also be faced with a huge tax bill for the missing money.

How to avoid a pension scam

You can find a list of common fraud warning signs on our dedicated web page. However, con-artists change their approach all the time, so it is inevitable that new and clever deceptions will emerge. Being confident that you would spot a fraud is – as the Citizens Advice study proved – no defence. Overconfidence is in fact one of the biggest dangers, as is the lure of superficially attractive offers. It may be astonishing that people would fall for a scam purely because of the attractiveness of the offer – and yet a majority of people apparently would. Don’t be one of them.

To be sure of finding a qualified, FCA-regulated adviser to help you with your pension, use the smart search at unbiased.co.uk. Many offer a free initial meeting – you can take the opportunity to ask about the adviser’s fees at this time.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.