Government Delays in Acting on Pension Scams
Back in September of 2016, Phillip Hammond announced a government initiative to ban cold calling to sell pension products in the wake of victims being defrauded to the tune of £43 million by scam artists.
Almost a year on, the government is still discussing the finer points of bringing the plan into action, and has been broadly criticised for the snail-like nature of implementation, amid concerns that cold calling might still continue till 2020. Meanwhile, more innocent pension holders are being defrauded every day.
A continuing problem
Over the past three months, an astonishing 1.8 million people have been targeted, and around £5 million was lost to fraudsters in the first half of 2017, after the initiative to ban cold calling was first announced. It seems reasonable to assume that another £20 million or more could disappear before anything tangible is done about the problem.
Steve Webb is Director of Policy at Royal London, and has been outspoken in his criticism of the government’s attitude to the project. He said: “The consultation says only that the government will be working on the details for the rest of this year and will then legislate ‘when Parliamentary time allows.’ With people being scammed every day, this is much too slow.”
The timetable laid down suggests that, at best, we will see an Act of Parliament at some point next year. But this will only be the beginning, as there will then be the need for secondary legislation to be drafted and, of course, debated.
Darren Cooke is the Independent Financial Adviser from Red Circle Financial Planning who set the ball rolling by starting the initial petition for a ban on cold calling. He is also disappointed with the progress, or lack thereof. He told reporters: “The longer it’s delayed, the more people are being ripped off and scammed.”
The problem came about as an unfortunate side effect of the new pension freedoms that came into force in 2015. On the whole, the new rules were seen as a good thing. After all, there is no hiding from the fact that many of the UK’s most prominent pension funds are not performing as well as they should, and there are some high profile pension deficits being reported. Royal Mail, Sainsbury’s and First Group are three examples that spring to mind, and the state of the pension fund was cited as one of the factors leading to the demise of BHS last year.
In that context, it is right and fair that investors have the freedom to do what they want to with their pension funds. If they can see a better alternative where the money can work harder, for example by entering the buy to let market or even by paying off high interest debt, then they can do exactly that.
Of course, the changes in the rules gave rise to a whole new breed of financial service providers, offering advice on how over 55s can cash in their pension pots and what they should do with the money. Most of these are professional, ethical people delivering a useful service. But where there is money changing hands, there are always a few opportunistic criminals ready to take advantage of anyone naïve, vulnerable or who just plain lets their guard down for a moment, and is taken in.
Anyone who falls victim to a scam feels foolish and a little embarrassed, but the truth is that these people are professionals. It is not your archetypal “little old ladies” who have fallen victim, but a wide variety of worldly wise and professional people in their late 50s.
What are the government measures?
So what exactly is proposed to counter the problem, and will it be effective? According to Pensions Minister Guy Opperman, we can look forward to “tough new measures that are being aimed squarely at those who scam.”
According to statistics from the Citizens Advice Bureau, some 97 percent of pension scams stem from cold calling. The new rules will put a blanket ban on any and all cold calling in relation to pensions. This will include emails and text messages.
The government will also strengthen HMRC rules, to prevent the fraudsters from opening fake pension schemes and will implement tougher measures to make it more difficult to transfer money from genuine pension schemes into fake ones.
At the same time, the government is ensuring that not just anyone can register a pension scheme. By restricting the transfer of pension pots between schemes, trustees will be compelled to check the receiving scheme is genuine and is regulated by the Financial Conduct Authority.
Will it make a difference?
On the face of it, the proposed measures sound reasonable, and you might think the only real issue is the delay in getting them in place. However, not everyone is convinced. One victim published his story and commented that as he selected the fraudulent pension plan via a web search and it concerned an offshore scheme, none of the proposed measures would have made the slightest difference to him. There was no cold calling involved, and the increased regulation and oversight only applies to schemes that are in the UK jurisdiction.
You might argue that this is an exception and most statistics suggest that by stamping out cold calling, you stamp out the bulk of the problem, but this is not the way crime works. It is a little like saying the ineffective lock on the back door will not represent a risk of burglary because up till now the burglars have always come in through the front door that was left wide open. Close the front door, and they will find another point of weakness if it exists.
If you are concerned about pension scams and need some impartial, expert advice, the team here at Hylton-Potts is always happy to help. You can call us on 020 7381 8111, or get in touch via email at firstname.lastname@example.org.
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