In a short first report on pension freedoms published today,
Monday 11 December 2017, the Work and Pensions Select Committee
says Government should 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.
Rt Hon MP, Chair of the Committee,
said: “Every day that passes without a ban, people are being
avoidably conned out of their life savings. There is no need to
overcomplicate 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 - people just aren’t
taking it. Making guidance the default option combined with the
ban on cold calling would be 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.”
Pension savings are under threat from scams, which span beyond
simple stealing of money. Pension scams are nothing new, but the
risks have become more pronounced since the widely welcomed 2015
pension freedoms reforms. 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 – the Committee heard of examples like
schemes to invest in “diamonds, overseas property developments,
store pods, forestry and film”.
Estimates of the scale of scamming vary hugely but it is likely
grossly underestimated by official reports and the full scale may
not be apparent for many years. The
evolving kind of pension scam that falls short of fraud – pushing
people toward “completely legal but totally inappropriate”
investments - needs to be tackled, and the Committee says
Government should take urgent action through the Financial
Guidance and Claims Bill as a first step:
- Cold calls are the leading driver of pension scams and
action is desperately needed to protect individuals from the risk
of losing their life savings. While a ban on cold calls will not
stop all pension scams, it is an important preventative measure.
It will also send a strong message to individuals not to respond
to unsolicited contact about their pensions. A new clause
in the Bill requiring the Government to introduce a ban by June
2018 at the latest, but set the details by regulations, will
allow outstanding issues to be resolved without being tied to a
lengthy parliamentary process. It will also mean the ban will be
future proof: capable of being adapted as scams evolve.
- Clause 5(2) of the Bill should be strengthened to create
a “guidance by default” provision that ensures an individual
either receives or expressly refuses guidance before being
granted access to a pension pot. The details should be set out in
Financial Conduct Authority rules, following public consultation.
The Government should use its existing powers to place equivalent
requirements on trust-based defined contribution pension schemes.
Guidance by default would promote shopping around,
better-informed decisions and protection against scams.
