The UK government’s Work and Pensions Committee, which has been reviewing the 2015 pension freedoms legislation in response to claims that it has led to a large and growing number of British pensioners being preyed on by scammers, has set a June, 2018 deadline “at the latest” for implementing a proposed ban on the use of cold-calling by those looking to solicit pension transfer business.
The news of the call for a June 2018 deadline for an “enforceable ban” on pensions cold calling, which was contained in a report released today, was immediately welcomed by critics of the 2015 pension freedom legislation, who have said it has resulted in many British pensioners being scammed out of their pensions.
One critic, though, Angie Brooks, director of Pension Life, founder and director of the pensions campaign group Pension Life, reiterated her frustration at the time she says the government has taken to act. Based in Spain, she advises “hundreds” of individuals who have lost most or all of their UK pensions to scammers.
“By next summer?! Thank goodness there’s no need to hurry, then,” Brooks, who is advising a number of individuals who’ve lost some or all of their pensions to scammers, said.
“That it’s even taken them this long to set a date, let alone a date halfway through next year, is simply appalling,” she added.
Need to ‘act now’
In a statement accompanying its report, the Work and Pensions Committee stated that the government needed to “act now, through the Financial Claims and Guidance Bill, to ban pension cold calls and make people either take or expressly opt out of guidance before they can access their pension pot”.
“Every day that passes without a ban, people are being avoidably conned out of their life savings,” Frank Field, the Labour MP for Birkenhead who has been chairing the Work and Pensions Select Committee, said in the statement.
“There is no need to over-complicate this: our proposal would see an enforceable ban in place by summer, closing at least one door on rafts of scammers at a stroke.
“Low saver engagement and high financial value makes pensions rich pickings for scammers offering fantastical returns or seemingly clever advice. The strongest weapon in the armoury against this is good advice and guidance – [but] people just aren’t taking it.”
Field added that by making guidance “the default option”, combined with the ban on cold calling, the government could make a “simple but big step forward in consumer protection in the era of pension freedoms.
“The government should use the bill that has just arrived in the Commons to legislate to protect pensions now.”
The Financial Claims and Guidance Bill, which the committee is proposing its recommendations be included in, was formally unveiled in June, and proposes to combine the UK’s Money Advice Service, Pensions Advisory Service and Pension Wise into a single financial guidance body. The consolidation was first proposed last year, as a means of making it easier for British consumers to access financial guidance.
UK pensions ‘under threat from scams’
In its statement today, the Work and Pensions Select Committee noted that the pension savings of British workers are currently under threat from scammers, whose activities go “beyond simple stealing” money, and whose actions have seen the risks of being scammed “become more pronounced since the widely welcomed 2015 pension freedoms reforms”.
It added: “The combination of high financial value and low saver engagement has made pensions a scammer’s ‘perfect storm’. Archetypal inappropriate investments are high risk, highly illiquid (once money is invested it is very difficult to retrieve) and unregulated”, often in such products as schemes that invest in “diamonds, overseas property developments, [storage] pods, forestry and film[s]”.
Cold calling, it noted, has been the “leading driver of pension scams”, and action is therefore “desperately needed to protect individuals from the risk of losing their life savings”, even though “a ban on cold calls will not stop all pension scams”.
In addition to recommending the ban on pensions cold-calling, the Work and Pensions Select Committee also said the government “should use its existing powers to place equivalent requirements on trust-based, defined-contribution pension schemes”, noting that guidance by default “would promote shopping around, better-informed decisions, and protection against scams”.
Separately, the committee noted that on Wednesday of this week it will hear evidence on the pension issue of the day, which involves what some have said has been a feeding frenzy by pension scammers on some 130,000 members of the British Steel Pension Scheme, who are facing a 22 December deadline to choose where they wish their pension pots to reside after that date.
As reported here last week, the matter arose after India-based Tata Steel agreed a deal in August to restructure its British pension fund after nearly a year of negotiations with British regulators and the trustees of the £15bn British Steel Pension Scheme.
Under the deal, which Tata said was necessary if it was to keep the steel-manufacturing facilities open in the UK, the UK steelworkers’ pension scheme is to be offloaded into the so-called Pension Protection Fund, as the British government’s “pensions lifeboat” is called. The situation is said to have attracted numerous pensions industry representatives, including scammers, who have, it’s said, been advising the steelworkers to transfer their pensions rather than leaving them in the company’s scheme.
‘One in six’ currently cold-called
As reported here last month, pensions minister Guy Opperman has said that as many as 10.9 million people – or roughly one in six people in the UK – are cold-called about their pension each year. Opperman cited these and other statistics in a letter to Work and Pensions Select Committee chairman Field.
In his letter, dated 14 November, Opperman noted that research by “respected consumer bodies” such as Citizens’ Advice “suggests that pensions cold-calling is an extensive practice”.
Opperman’s letter was in response to a request from Field, who has said – in a letter to the Financial Times in October, among other places – that he believed that the pensions freedoms introduced in 2015 needed to be reformed.
In addition to the finding that more than 10 million people are cold-called annually about their pensions, the Citizens’ Advice data also showed that, in 2013, “97% of their [the Citizens’ Advice] cases involving pensions liberation scams stemmed from a cold call”, Opperman added in his letter, which may be accessed and viewed here, along with other letters and documentary evidence submitted to the pensions inquiry.
The inquiry was originally launched by the DWP’s Work & Pensions Committee in September to determine, in its words, “whether and how far the pension freedom and choice reforms are achieving their objectives, and whether policy changes are required”. It was seen as a follow-up to an inquiry carried out shortly after the reforms were introduced in April, 2015.
‘Bang on the money’
Among those who said they were mainly pleased by the findings contained in today’s Work and Pensions Select Committee report was the Association of British Insurers’ director of policy, long-term savings and protection, Yvonne Braun, who noted that in the UK, the selling of mortgages is already protected by a cold-calling ban, making it all the more urgent that pensions be given “the same level of protection”.
“Further measures to prevent fraudsters switching to spam emails and texts will also be important,” she added.
“Savers need to be clear that any unsolicited contact about their pension is not to be trusted – they should instead seek quality guidance from PensionWise and The Pensions Advisory Service, and advice from regulated financial advisers.”
Tom Selby, senior analyst at AJ Bell, the Manchester-based platform provider and pensions specialist, also endorsed the Work and Pensions Select Commitee report, noting that it was “bang on the money when it comes to banning pensions cold-calling”.
“Introducing this vital preventative measure needs to be a priority for the government – failing to do so leaves savers at increased risk of being conned by fraudsters,” Selby added.
“A firm deadline for implementation would help focus minds, and the committee must continue to hold the government’s feet to the fire until it delivers on its promise.”
In his comments, however, Selby noted that while the DWP committee looking into the pension regulations was “right to look at ways to boost take-up” of the Pension Wise service, there was a potential problem in the fact that a current DWP proposal “to default savers into guidance at the point when they want to access their savings” carried with it a “risk creating problems”.
Specifically, he said, savers who decided to take advantage of the pension freedoms “generally adopt a two stage process of deciding how they want to access their pension” only after which they take action. Given this fact, “forcing people to take guidance at the point they are taking action is too late, and they are unlikely to be happy at the prospect of a barrier being put in the way of them accessing their money”.
Says Selby: “They need guidance much earlier, when they are deciding how to access their pension savings. The committee would have likely come to the same conclusion if it had actually spoken to a pension provider or customer who has been through the process.
“If the government does go down this route, we believe it is the government that should take responsibility for booking guidance appointments on behalf of savers.”
A better alterntive, Selby said, would be if the effort were put into “reviewing and simplifying the communications providers and advisers are forced to send to customers”.
“These documents often run to 30 pages or more and hardly anyone actually reads them.
“By creating an environment where savers are kept informed throughout their savings journey, the government and the regulator could improve engagement without foisting a 45 minute guidance session on people.”