Philip Hammond has used his first Autumn statement to address the growing concerns that have been raised over pension related cold calling and the substantial increase in people, who are often elderly, becoming the victims of scams and losing their life savings. The new pension freedoms, introduced by George Osborne last April allow anyone over the age of 55, access to the entire pension. According to the ABI’s latest figures some £8.2 billion was withdrawn from pensions this last year. While this was initially welcomed by savers who could take control of how and when to enjoy their pension, it has become apparent that unscrupulous fraudsters have used the new pension freedoms to target pension savers. This has led to a dramatic and worrying increase in the level of fraud associated with pension schemes.
The fraudsters have taken full advantage of the complex and rapidly changing pension reforms to gain access to savings held by individuals who are often elderly and vulnerable to sophisticated sales techniques. They entice savers to transfer their investments into bogus or unregulated investment schemes, many of which turn out to be scams. There are various types of pension scams, most of which start with a cold call being made to an unsuspecting victim offering “free” financial advice or a “free” review of their pension and suggesting alternative investment schemes with the promise of higher returns. Once they have gained the investor’s trust and confidence they will use well practised sale techniques to recommend other schemes with tempting returns. It only takes one cold call; one wrong decision and an individual’s entire pension consisting of their life’s savings, can be lost forever.
It has been apparent that over the last year there has been a dramatic increase in pensioners becoming a victim of these scams. It is believed that around 11 million pensioners a year are being targeted by cold callers with reported estimated losses of almost £19m to pension scams between April 2015 and March 2016.
The government is therefore proposing in the Autumn statement to ban pension related cold calling in an attempt to try to limit the damage that is being caused by such sales techniques. The proposal will forbid any calls being made to individuals by a business where there is no existing relationship. Anyone caught making any such approaches may be fined up to £500,000. In addition, it is understood that Philip Hammond will also consider giving more powers to firms to block suspicious transfers from being made out of regulated schemes. Care will need to be taken in adopting this approach to get the balance right. For example, if a transfer is made, does it mean it has been endorsed by the transferring scheme? What will be the position if a transfer request is refused and something adverse then happens to the transferring scheme? What happens if an investor wishes to transfer his entire savings to a legitimate scheme?
Whilst it is encouraging that the Government recognises the necessity to address this growing concern and these proposed safeguards are welcomed, it is unlikely that these proposals alone will to deter the unscrupulous fraudsters who will continue to think of more inventive ways to raid investors’ pension pots.
People will continue to receive unsolicited calls and will be contacted via other means such as text messages, emails and advertisements including website advertisements as scammers seek new ways to exploit the rules. However, the new proposals will hopefully give people the confidence to simply put the phone down if contacted in the future by aggressive sales representatives in the knowledge that such calls are now banned. Furthermore, by highlighting the problem of cold calling as a key issue in the Autumn statement, people should be more vigilant when receiving investment advice and be more alert to the continuing need to think twice before accepting “free” advice, especially in relation to transferring their pension. After all, not much is genuinely free in this world!