Summary
Pension savings are under threat from scams. The combination of low saver engagement and high financial value makes pensions rich pickings for scammers offering fantastical returns or seemingly clever advice. That threat has become more pronounced since the 2015 pension freedoms reforms gave people more flexibility over access to their defined contribution pension pots. The consequences of a scam for individual households can be disastrous: the loss of a lifetime’s savings with little chance of getting them back.
We call on the Government to take urgent legislative action through the Financial Guidance and Claims Bill, which has just been introduced to the House of Commons having completed its passage through the Lords. We will make further recommendations in at least one further report on pension freedoms.
Banning pension cold calling
We welcome the Government’s commitment to banning pension cold calling, the leading driver of pension scams. While a ban will not stop all pension scams, it is an important preventative measure. It will also send a strong message to individuals to hang up their phones if they receive unsolicited calls.
Every day that passes without a ban, people are being avoidably conned out of their life savings. While Clause 4 in the Bill is flawed, the Government’s timetable for introducing an improved measure is not urgent enough. Under our proposal, an enforceable ban would be in place by June 2018 at the latest. The Government would be able to continue to consult on the details, which would be set by regulations, in the meantime. This approach has the added benefit of future-proofing the ban as the tactics of scammers evolve.
Default guidance
Free and impartial Pension Wise guidance, provided by telephone or face-to-face appointment, is greatly valued by those who use it. Take up, however, is not high enough. Far too many people are currently taking vital decisions in the dark, putting them at greater risk of suffering irrevocable financial detriment through scams or choices contrary to their interests, such as transferring pensions to savings accounts. These problems will only grow as people become more reliant on income from defined contribution pensions in retirement.
The existing Pension Wise promotion regime of signposting by pension providers—who have no business interest in promoting the service—and advertising has proved insufficient. We welcome the Government’s acceptance that people should be given more encouragement to take guidance. We propose a strong nudge. While Clause 5(2) of the Bill is welcome, we think it can be improved through exemptions to avoid unnecessary burdens and stronger core requirements to make taking guidance a true default option. While individuals could choose not to take free and impartial guidance before accessing their pension pot, this would no longer be the consequence of passivity: like with the highly successful automatic enrolment policy, people would have to actively opt out.
Default guidance would promote shopping around, better-informed decision-making and protection against scams. Combined with a ban on cold calling, it would represent a great step forward in consumer protection in the era of pension freedoms.
7 December 2017