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Apfa: What next on pensions scams and unregulated investments?

Caroline Escott

The pension freedoms have given people greater autonomy over what they do with their retirement savings, as well as provided a useful boost to tax revenues in the era of austerity.  However, with these reforms also came a greater opportunity for consumers to be scammed out of their pension savings by being encouraged to invest in fraudulent or unsuitably risky schemes.

Pension scams had been on the rise before ex-chancellor George Osborne’s freedoms but there is no doubt his reforms gave them a boost. So the industry was pleased to hear new Chancellor Philip Hammond announce further action on scams in last year’s Autumn Statement.

Following on from this, the Treasury and the Department for Work and Pensions have issued a joint consultation seeking views on their proposals to prevent pension scams. There are three key measures suggested: a ban on cold-calling, limiting the statutory right to transfer, and making it harder to set up fraudulent schemes.

Cold-calling ban

The ban on cold-calling has received the greatest amount of media coverage, and we understand there is sympathy for a wider ban on communications on pension transfers within the Government. We favour a cold-calling ban as it sends a strong signal to consumers to put the phone down as soon as they realise the call is about their pension.

The consultation acknowledges it does not want to restrict legitimate use of cold-calling, yet the devil is in the detail. We understand from members that, at least in the early days of setting up a business, the use of lead generators or of referrals from existing clients can be helpful in building up a client list. At present, the ban on cold- calling would cover these perfectly reasonable business practices and would constitute a barrier to entry for the new firms that undertake such activities.

The paper also notes some scammers offer “free financial advice”. We believe caution needs to be taken in explicitly mentioning this as a scam indicator. While it is true there is no such thing as free advice, we know some advisers do promote the free initial conversation (as no fee can be charged until it is agreed with the consumer) as part of their marketing.

Extra hurdles

Another area the paper covers is how to make it harder for fraudsters to open small pension schemes. One suggestion is to bring back pensioneer trustees on small self-adminsistered schemes as an extra layer of protection for consumers.

However, advisers have told me of their concerns that pensioneer trustees might take a similarly cautious approach to SSAS use to that of Sipp trustees, and this could have adverse consequences for small businesses that legitimately use their SSAS as a loan to cover, for example, business capital expenditure.

More to be done

There is more that could be done by the Government and regulators to clamp down on fraudsters, including pension scammers. Cobs 4.12 currently allows for financial promotion of non-mainstream pooled investments to high-net- worth individuals and certified or self-certified sophisticated investors.

The current regulation is insufficiently stringent, as retail consumers are ending up investing in unregulated products and then claiming compensation. Having a certain amount of wealth is no guarantee that you have the understanding necessary to invest in complex or risky investments, so high-net-worth investors should be completely barred from investing in non-mainstream pooled investments.

What is more, allowing an adviser to certify someone as sophisticated – thereby allowing rogue advisers to encourage the same individual to invest in unsuitable products – is a loophole that should be closed.

Protecting consumers from the fraudulent schemes that accompanied the pension freedoms is an important task. Advisers should take the opportunity to feed into the consultation and any future proposals to ensure measures that strike a balance between consumer protection and enabling a thriving adviser sector.

Caroline Escott is senior policy adviser at Apfa


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Banning cold calling will still not stop a fair number of clients being defrauded. Some will be unaware of the ban or will be persuaded to go along with it and therefore will still deal with fraudsters. More importantly those calling already know they are outside of the law so are unlikely to stop calling just because the government says so.

    • No it won’t stop all the scammers but it will stop some and it will mean some people to hang up on scammers. They may or may not continue to make calls the evidence is UK based call centres will cease, cold calls for mortgages have been illegal for years and they just don’t happen anymore.

      If more people hang up and the scammers get less and less success from cold calling they will stop because it will no longer be worth their while, simply we aim to disrupt their business model.

      Interestingly I have had contact from a number of people who deal with the victims of scams and they are all 100% supportive of the ban.

  2. To answer some of your point Caroline.

    The definition of a ‘cold call’ is that the member of the public receives a call from someone they don’t know and they are not expecting to be called by.

    A ban on cold calling will not stop advisers from receiving referrals from existing clients or professionals or indeed anyone else as long as the person making the introduction has also told the potential client they have passed on their name to the adviser, who the adviser is and preferably the name of their firm. If that is done then it is not a cold call. In my case I would expect any such referral to have been discussed with the person before I’m given the details anyway so the ban should make no difference.

    For lead generation businesses they may need to adapt their business model by giving the name of the adviser they have passed / sold the lead to onto the prospect. Ideally there should then also be a confirmation that the prospect has received that information before the adviser is given the full information or given the green light to make the call. Again they just need to confirm to the client, following their enquiry, who will be ringing them then its not a cold call.

    Scammers used to use SIPP’s as their pension vehicle of choice, some of the big names in our industry should hang their heads in shame on this. Then they moved onto SSAS arrangements particularly as one member schemes are in effect not regulated at all. This needs to be remedied in some way, if that is by bringing such schemes back under a professional trustee I’d have no problem with that. Loans are allowable so why would the SSAS trustee not agree them provided they are legitimate. Sadly many have not been and have been used as a way of taking money out of the pension.

  3. Post this morning on my Linkedin:

    “Im looking to start an SMS campaign for pension reviews – who is taking these leads?”

    So that’s electronic communication to undoubtedly not optin numbers thereby breaching PECR. And which ever adviser takes them will no doubt have a lovely 10% guaranteed scheme for them……….

  4. Darren – can you explain the rules (already in existence) that should prevent the example in your second paragraph? Or at least make it much less worthwhile.

    There’s a clue in my previous post.

  5. Darren aren’t you just more concerned at losing clients that anything else, a ban on cold calling protects your firm from the client realising that their are sometimes better options out there. I find it interesting that a firm your were previously associated with received a fine from the FCA for charging clients ongoing fees without their knowledge.
    Secondly I recently read of a lady who was scammed £100,000 via someone she met through an online dating site…should the government ban online dating also?

  6. The fact the Darren goes quiet on every website forum when challenged on these topics is a tell tale sign of what his agenda truly is.

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