The UK pensions industry this weekend is expressing support for plans by the government to ban the use of cold-calling to lure pensioners into taking advantage of new pension freedoms by investing in what too often turn out to be fraudulent schemes.
The ban is to be formally announced next Wednesday by UK chancellor Philip Hammond in his Autumn Statement, according to a Treasury statement issued today.
According to the statement, Hammond “will use this week’s Autumn Statement to announce the government’s intention to ban pensions cold calling, protecting millions of vulnerable people and cutting off the main route through which cowboys trick people out of their life savings”.
The ban is likely to come into force relatively soon, pending a consultation, the BBC said a report published on its website today, with fines of up to £500,000 being mentioned as a proposed punishment for those who continued to violate it.
Although the proposed ban is understood to apply only to phone calls at the moment, the plan is to consult industry players on the possibility of extending it to cover all forms of electronic communications, including emails and text messages, the BBC and other media organisations covering the story today said.
In his Autumn Statement — his first as chancellor — Hammond is also expected to announce two other anti-pension-scam-related measures: one that would give more powers to firms to block suspicious transfers, and the second to stop small self-administered schemes (SSASs) being able to get set up by using a dormant company as the sponsoring employer, in order to make it harder for scammers to set up fraudulent pension schemes.
Earlier this month, Lord Young, a Conservative peer and Treasury spokesman in the Lords, revealed that a cold-call ban was in the offing, and likely to be unveiled in the Autumn Statement.
The Government’s action is seen as a response to mounting criticism about the need for action in the wake of a rise in scams that has followed the introduction of pension freedoms last April, which were brought in under the previous government.
Angela Brooks, who represents an organisation set up a few years ago to identify and prevent pension scams, close loopholes in pension law and rescue victims of pension fraud known as Pension Life, called the proposed cold-call ban as a “golden opportunity to correct the UK’s disastrous, ‘chocolate teapot’-esque [pension freedom] rules”.
Today’s announcement also comes a little more than two weeks after a UK financial adviser named Darren Cooke took action by launching a website – www.bancoldcalling.co.uk – aimed at bringing together advocates of a ban pension cold calling, complete with a petition which visitors to the website have been urged to sign.
Some 7,771 have signed it thus far; it needs 10,000 in order for the government to formally respond, and 100,000 to be considered for a debate in Parliament.
Cooke, a director of Derbyshire-based Red Circle Financial Planning, has appeared in media interviews ever since launching the website to explain the need for such a ban, including an appearance on BBC television this morning.
Among the statistics being cited today by media outlets, including Sky News, is an estimate that around 250 million scam calls are placed every year in the UK – or roughly eight every second; and as a result, some 11 million UK pensioners are currently being targeted annually by cold-callers.
Perhaps most incriminating is an estimate that UK savers have lost around £19m to scams between April 2015, when the pension freedoms were introduced, and March of this year.
Ban ‘is overdue’
Pensions industry spokesmen told International Investment that a ban on cold-calling by those offering pension access services was not just welcome, but overdue.
And some expressed concern about whether the authorities were prepared to enforce it properly, particularly in the case of cold-calling operations based overseas.
“If this stops the unregulated firms, normally [located] overseas, cold-calling UK-resident and UK-domiciled people, tricking them into transferring their UK scheme into a ROPS [registered overseas pension scheme], solely to invest in questionable, often il-liquid and unsuitable UCIS funds, this can only be a good thing,” said Bethell Codrington, global head of TMF International Pensions, which is in the business of enabling people to transfer their pensions out of the UK.
“However, the proof will be in the policing, and [in the] penalties handed out by the authorities to those who contravene these new rules. ”
Chris Lean, a Czech Republic-based adviser with Aisa International and a long-time critic of the UK’s current pensions freedoms legislation, noted that many in the industry had flagged the new pension freedoms – alongside the statutory right for individuals to transfer their pensions if they wished to – as being the equivalent to “an open season for scammers” even before the rules came into effect.
“There were already substantial problems with pension scams, as a result of the Pension Simplification rules from 2006,” he noted.
“Then, the unfortunate Royal London ruling earlier this year made the job of pension providers that much harder, as they were rendered effectively powerless to block a transfer suspected of being a scam.”
The Royal London judgment was a UK High Court ruling back in February which saw the court overturn a Pensions Ombudsman decision that had sided with Royal London over a suspicious £8,000 transfer to a SSAS [small self-administered scheme] in 2014. In that case, an individual named Donna-Marie Hughes had appealed a July 2015 decision by the Ombudsman’s that Hughes’s earnings weren’t sufficient to give her a statutory right to transfer her pension.
Yvonne Braun, director of Long-term Savings and Protection Policy at the Association of British Insurers, said a ban on cold-calling was a start, but more needed to be done.
“Cowboys should not be allowed anywhere near people’s life savings,” she said. “Just as cold-calling on mortgages is banned, the same protection is needed for pensions, and we’re pleased to see the Government making a move on this.
“Pensions scams are a huge problem, and something the sector is keen to tackle.
“Banning cold-calling should do a lot to help, but further measures to clamp down on dodgy trust-based schemes will also be essential, as will allowing providers to block suspicious transfers.”
Pension Life’s Brooks agrees, saying Hammond’s announcement of a cold-calling ban “is a major step in the right direction”.
“[But] while I have no wish to detract from the good news, the government must recognise that cold calling is only one of the tools in the scammers’ arsenals, and that their tricks and techniques are constantly evolving,” she adds.
“And, sadly, it is not just unregulated scammers who are promoting such scams, but a few regulated UK firms as well.
“If we’re now heading towards some form of prevention, the government now needs to tackle the problem of the damage this scourge of the financial services industry has caused both in the UK and offshore in the past six years. Thousands of victims have been left financially crippled – not just by the scammers but also by HMRC – while the regulators and ombudsmen have twiddled their thumbs.
“Hopefully, this will be the start of a sea change in Britain’s attitude to fraud, and a serious collection of effective measures put in place to prevent more scams and thwart the armies of scammers in all jurisdictions.”
As reported, at the end of July the UK government revealed that in the first 16 months since the pension freedoms were introduced, more than £6bn had been taken out of pensions by pensioners, of which £1.7bn had been taken by 159,000 people in the most recent two months preceding the announcement.
Under the new freedoms, anyone aged 55 and over can withdraw any amount from their defined contribution pension scheme, although they will have to pay tax on most of it. Many individuals with defined benefits schemes are permitted to transfer into DC plans.