TOO many people are losing their pensions as unscrupulous cold-callers entice them to transfer their hard-earned savings into unsuitable or even fraudulent schemes.
Parliament’s Work and Pensions Select Committee is, at the start of 2018, calling on the Government to urgently improve protection for the public. This is absolutely right.
Cold-calling for mortgages was banned a few years ago, we urgently need to do the same for all unsolicited approaches on pensions (and possibly other financial products too) before more people lose their hard-earned savings.
There is an ideal opportunity to legislate, as the Financial Guidance and Claims Bill is going through Parliament at the moment. Thanks to the hard work of the House of Lords, a cross-party group of peers forced the Government to add important amendments to the Bill, including a requirements to ban cold-calling.
Following the new pension freedoms introduced by the last Government in 2015, people suddenly have more choices and need to understand how best to use their pensions. The new rules also make transferring out of a final salary-type pension much more attractive. Any pension transfer can be risky and making the wrong decision is often irreversible.
The new freedoms also make it more attractive to fraudsters to try tricking people to transfer to unsuitable schemes.
Therefore, banning cold- calling is really important. The public need to receive a clear and unequivocal message – if anyone contacts you out of the blue about your pension, they are breaking the law.
Currently, most people do not realise the dangers. Cold-callers sound so persuasive and friendly. Sometimes, they offer you a ‘free pension review’, sometimes it is an exciting new pension investment opportunity that offers spectacular returns but is only available for a short time. Some scammers even pretend to be calling from the Government’s own PensionWise service.
All of these approaches have led to people losing their pensions. So it is more important than ever to warn the public. Making cold-calling illegal would be an excellent first step. We could clearly say that no bona fide company will contact you out of the blue about your pension: if you get an unsolicited phone call, just hang up. If you get a text, just delete it.
The Government has already said it wants to do this, but words are not enough. It needs to act urgently and implement a ban in the most effective manner.
The best way to protect the public is to make the financial services regulator, the FCA, responsible for banning both cold-calling and also the use of leads obtained from unsolicited approaches. The FCA has a close relationship with pension providers and they need to be regulated in order to operate. By threatening to strip any regulated firm of their licence if they use any leads they receive from another company that has cold-called customers and passed on their details, the business models of cold-callers would be undermined more effectively.
Another layer of protection could sit alongside the cold-calling ban. The idea would be to ensure everyone automatically receives free and unbiased help to discuss their pension before they transfer. The new guidance service called PensionWise was set up by the Government to help the public with their choices. It has already saved many people from falling for pension scams, but others did not get guidance and lost their money.
That’s why the House of Lords also added measures to the Financial Guidance Bill , which were endorsed by the MPs on the Work and Pensions Select Committee, calling for all customers wishing to transfer or withdraw pension savings (who do not have an Independent Financial Adviser) to be automatically-enrolled into a free financial guidance session. This would add an extra layer of protection alongside the cold-calling ban.
Customers could choose to opt out, but once they have an appointment, the hassle of arranging it has been removed and they are more likely to get the help they need. PensionWise is an excellent service, with satisfaction rates above 90 per cent but too few people are using it. Some don’t know about it, some think looking at a website is enough, others think talking to their provider’s helpline is just the same and some simply don’t get round to doing it.
If the process becomes the ‘default’ arrangement, then more people will be protected against making bad decisions. This builds on the behavioural economics principles that have already successfully increased pension coverage.
The combination of free guidance for everyone and banning cold-calling would significantly improve consumer protection. The sooner these measures are passed and implemented, the safer our pensions will be.
Ros Altmann is a Tory peer and former pensions minister.