There was one nugget in Philip Hammond’s first – and last – Autumn Statement that was met with almost universal approval: a crackdown on pension scams and cold-callers.
‘About time too’ seemed to be the general response, including from two former pensions ministers.
I certainly wouldn’t disagree with this sentiment. Pension Life, a group that helps fraud victims recover losses, estimates that people have lost a staggering £1.7 billion in pension scams in the past six years.
Action is well overdue. But before we get too carried away it’s worth noting that all we have at present are words, not action.
The Chancellor hasn’t introduced any ‘ban’ on cold-callers yet. All he’s announced is a yet-to-be-published consultation to discuss how this might work.
There is also no indication of who would police such a ban – and take effective action against firms found to have broken the rules.
The Financial Conduct Authority (FCA), the main financial regulator, said it hasn’t had any discussions about taking on this role. At present it can only take action against regulated firms — part of the reason this problem has escalated.
Pension scams are nothing new. But they have grown exponentially since ‘pension freedom’ rules were introduced in 2015, giving people access to their retirement savings from the age of 55.
This relaxation of these rules opened the door to out-and-out fraudsters as well as less scrupulous pension firms who want to dip into your savings.
Typically these fraudsters cold-call potential customers offering a ‘free’ pensions review. Given most of us find pensions both boring and confusing, many have jumped at the chance to talk through their options with someone who purports to be an adviser. Sadly most are anything but.
This is where the hard-sell starts. In the worst cases fraudsters will move your money offshore and this might be the last you see of your life savings. Others may recommend any number of outlandish investment schemes, most of which will be characterised by hefty upfront commissions and high charges.
Until now, reporting such dubious practices has proved difficult. I was cold-called and offered a free review a year ago. I accepted the offer, just to see what course of action they’d recommend. In the end it wasn’t as bad as it could be – no recommendation to invest in golf courses in Cape Verde or graphene manufacturers, two common scams.
Instead they suggested I switch an old company pension into a private pension where charges were three times as high. There was also a £1,000 fee to process this transfer. I politely declined their offer.
The problem was the firm that contacted me initially was an unregulated ‘introducer’, so the FCA didn’t want to know. A quick Google search showed it traded under various names, and had in the past been associated with ‘pension unlocking’ scams (where people are told, wrongly, that they can access pension funds before their 55th birthday.).
Meanwhile, the regulated firm that conducted the review did not appear to have broken any rules. It hadn’t cold-called me, and while I thought its recommendations were rubbish, they apparently met current guidelines as both charges and ‘risks-warnings’ were set out in the accompanying documents (although it failed to compare its charges with my current pension arrangements).
It’s not hard to see how many people get lured into such costly schemes.
It has been suggested that a well-publicised ban on cold calls would alert people to the potential dangers so they’d be more likely to hang-up on these calls. I think that’s a naive approach and does nothing to protect the most vulnerable consumers.
More effective action is needed to prosecute firms – regulated or not – who flout these rules, and this should include unsolicited emails and texts too. It should also encompass any regulated firm further down the food chain that has been too lazy or greedy or ask pertinent questions about where these ‘leads’ came from.
There needs to be a more joined-up approach that sees organisations like the FCA, trading standards and police working together, possibly with organisations in other jurisdictions. If someone purports to be from the water board to gain access to your home then subsequently robs you, they could expect a custodial sentence. I’m not sure why someone helping themselves to your pension fund is treated any differently.
Pension freedoms
Anyone thinking of making the most of the pension freedom rules, and dipping into their savings – perhaps to pay for a holiday, or a spot of DIY – might want to think again following this week’s Autumn Statement.
In what sounded like a technical change, the Chancellor announced that the ‘Money Purchase Annual Allowance’ would be cut from £10,000 to £4,000.
He was keen to add his own gloss to other announcements, pointing out that a change to regional business tax reliefs was ‘complicated, but good news’. Sadly he didn’t mention that this particular pension change was complicated, but bad news for many in their 50s and 60s.
This change – which will come into effect in April next year – means that once you withdraw as much as £1 from your pension pot, you’ll only be able to save a maximum of £4,000 a year into these tax-advantaged schemes. That works out at £333.33 a month, which will include any employer contributions made into a company pension.
The danger is that people will take this ‘free’ money to fund life’s little luxuries but then realise they’ve severely hampered their ability to save for old age. These much-lauded pension freedoms are starting to look less and less flexible.
Emma Simon is a freelance consumer journalist and former Personal Finance Editor at The Sunday Telegraph
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