Conclusions and recommendations
Pension scams
1.The pension freedoms reforms, which gave people more choice about what to do with their own money, are broadly welcome. In enabling ready access to very large pension pots, however, they have undoubtedly made many savers more susceptible to being scammed. Scamming is likely to be grossly underestimated by official reports and its full scale may not be apparent for many years. For the victims, the loss of a lifetime’s saving can be devastating. It is a problem that warrants urgent action. (Paragraph 9)
Banning pension cold calling
2.We welcome the Government’s commitment to banning pension cold calling. Cold calls are the leading driver of pension scams and action is desperately needed to protect individuals from the risk of losing their lifetime 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. Every day that passes without it, people are being avoidably conned out of their life savings. (Paragraph 22)
3.Clause 4 of the Financial Guidance and Claims Bill is welcome in that it would enable a ban on pension cold calls. It is, however, flawed because it ties that ban to the establishment of a new financial guidance body. This could delay the ban until 2020. It is much more urgent than that. We recommend a new clause which would require the Government to introduce a ban by June 2018 at the latest, but would enable it to set the details by regulations. This will allow outstanding issues to be resolved without being tied to a lengthy parliamentary process. Importantly, it will also mean the ban will be future proof: capable of being adapted as scams evolve. The regulations should specify the scope of the ban, including:
- the forms of communication, services and products to which it applies;
- what constitutes an unsolicited communication; and
- exemptions for legitimate business contact.
4.Our proposed clause, which would also enable the Government to make provisions by regulations for enforcement, is set out at the end of this report. (Paragraph 23)
Default guidance
5.Pension Wise guidance is greatly valued by those who use it, but it is not reaching enough people. There are signs that take-up of guidance is increasing but this is from a very low base. While the Pension Wise website is a valuable resource, it is no substitute for a conversation with an expert. The existing promotion regime of signposting by pension providers—who have no business interest in promoting the service—and advertising has proved insufficient. 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. As ever greater numbers of auto-enrolled savers approach retirements during which they will rely on defined contribution pots for retirement income, the need to boost engagement with pension guidance will grow increasingly acute. (Paragraph 36)
6.Clause 5(2) of the Financial Guidance and Claims Bill seeks to give a much-needed nudge towards greater take-up of Pension Wise guidance appointments. We welcome the Government’s acceptance that this is the right direction of travel, subject to fine tuning. The Clause as it stands falls short of default guidance as it does not require individuals to participate or expressly turn down the opportunity before being granted access to their pension pot. Opting-out could be passive. It also risks making routine transactions, and those in which the individual has already taken advice, unnecessarily cumbersome. (Paragraph 45)
7.We recommend that Clause 5(2) of the Financial Guidance and Claims Bill be strengthened to ensure that an individual receives or expressly refuses guidance before being granted access to a pension pot. The details of what constitutes a choice not to receive guidance should be set out in Financial Conduct Authority rules, following public consultation. So too should the details of appropriate exemptions in instances where:
- the pot concerned is of low value;
- the individual has already received guidance or advice; or
- the transfer in question is a routine consolidation of pots.
The Government should use its existing powers to place equivalent requirements on trust-based defined contribution pension schemes. These measures would establish a proportionate system of default guidance on pension freedoms, promoting shopping around, better-informed decision-making and protection against scams. Our proposed amendment is shown at the end of this report. (Paragraph 46)
7 December 2017