Labour plans to introduce mandatory “cooling-off” periods for defined contribution pension savers may not be enough to protect people from fraudsters, experts warn.
The party says the rules would come into action when customers approach, or are approached by, a provider on how to invest their savings.
It adds that the requirement would only apply when a person attempts to withdraw more than a certain amount from their pot, although this has not been specified. The duration of the pause also remains unclear.
The exact details of the policy are set to be ironed out in a consultation after the election.
Cooling-off periods are already offered by some providers, although their duration varies between 14 and 30 days.
Partnership director of corporate affairs Jim Boyd says: “The principle Labour is pointing at is absolutely sound, it is one of protecting the most vulnerable from making decisions they are ill-equipped for on the spur of the moment.
“But many companies will give a 30 days period anyway, and if you are throwing something way into the future like six months or a year then it becomes impractical.
“You have to have some degree of stability when you are entering into investment contracts. Or are providers just going to sit on the customer’s money for a year and wait for them to say yes or no?”
LV= head of retirement propositions Phil Brown adds that his firm already offers a 30 days cancellation period as standard, as well as guarantees on quotes, but questions how the Labour plans would offer better protection to consumers.
He says: “If you have a cooling-off guarantee, but the individual is dealing with a fraudster, then how is that going to help?
“They are not going to give your money back. Organisations that already offer a guarantee are the ones you don’t need to worry about, but when it comes to a criminal organisation a guarantee is not worth much because in reality they are not going to be able to retrieve it.”
The Labour plans came alongside proposals for a kite-marking scheme for both registered and authorised firms, with the aim of helping customers select reliable products.
Labour shadow work and pensions secretary Rachael Reeves has also announced plans for a cross government taskforce to tackle scams, featuring the FCA, The Pensions Regulator, HMRC, the Serious Fraud Office, and Action Fraud.
She says: “We fully support the new pension flexibilities which will help savers make the most of their retirement income. It’s important that savers are protected from the very real threat of being ripped off by fraudsters or forced to pay excessive fees.
“These are common sense measures that will help savers make the most of the new pension flexibilities and maximise their retirement income.”
The move represents the latest salvo from the Labour party in seeking to highlight fears of consumer exploitation.
Labour has also pledged to introduce a cap on drawdown charges if elected, while shadow employment minister Stephen Timms has suggested the party would seek to immediately introduce safeguards for consumers if elected.
Peter Chadborn, director, Plan Money
Cooling-off periods do happen already in most financial products, but if Labour are saying that should be stepped up for more consumer awareness in some way then that’s a good thing.
There are also different time periods for different types financial products, so one thing that would be good could be to introduce a uniform period of time.