The Pension Freedom Act has opened up new scope for fraud and the government’s latest measures may not go far enough a former minister tells Glint
The pensions freedoms enacted three years ago may have opened up a multitude of avenues for fraud according to recent figures. Last year £6.7 billion was withdrawn from pension funds thanks to the relaxing of pensions access under George Osborne but these drawdowns may well have become a target for the nefarious investment scams.
When the Pension Freedom Act came into effect three years ago it was criticised for allowing the ‘Lamborghini’ risk as pensioners spent their savings on a status sports car rather than a prudent retirement. The risk to a secure retirement now seems to be from predatory scams looking to relieve pensioners of their hard earned cash. Last year the Money Advice Service suggested consumers received 250 million scam calls.
“The pension freedoms are fundamentally beneficial for people, giving them welcome control and flexibility over their retirement savings,” said Geoff Bouchier, managing director of advisory firm Duff & Phelps. “However, these reforms have also increased the risk of retirees being targeted by scammers.”
Pointing to data suggesting some 222,000 pensioners have made 500,000 withdrawals in the first quarter of 2018 alone, Bouchier warned that fraudsters could be behind one in ten pension transfer requests. He also highlighted the rise in fraud since pensions freedom; with £19 million in suspected pension liberation fraud taking place between April 2015 and March 2016 – twice as much as for the same period in 2014-15.
“What we are seeing in the market is more investment products coming to light, which were established a number of years ago to target very aggressive rates of return. In some instances, these are being revealed by retail investors anxious to see the return of their pension savings invested,” said Bouchier. “However, we suspect that many remain unexposed as retail investors are concerned that by doing so would bring down the collapse of the scheme and likely result in them never seeing their money again.”
Bouchier welcomed the forthcoming implementation of the Financial Guidance and Claims Bill, which would prohibit pensions cold calling as soon as the end of June 2018 and hit cold calling bosses with fines of up to £500,000. However, former pensions minister Baroness Ros Altmann was less optimistic, saying the problem of pension cold calls and scams will not go away and customers are not protected strongly enough by either the government or regulators.
“The most effective way to improve protection would be to ban unregulated lead generators who cold call clients, to ban the use of data gathered by unsolicited approaches, to automatically refer all customers to free impartial guidance and to have clearer warnings and restrictions on the use of unregulated investment products,” Altmann told Glint.
“The new legislation that is supposed to ban cold calls does little more than enshrine already existing FCA rules into primary legislation. Lead generators will not be frightened by threats from the ICO. The FCA or Pensions Regulator should be tasked with ensuring people don’t [lose] their pension fund after receiving a cold call and [make] greater encouragement of financial advice.”
Regulated independent financial advice should help protect consumers but other elements of the system also need to change said Altmann pointing to the “digital discrimination” faced by many pensioners who remain unaided and unable to comprehend or complete the digital forms required by many financial service providers – a knowledge deficit also open to exploitation.
Latest figures from AgeUK shows 3.8million older people in Britain today have never used the internet. “Proper and fair arrangements for claiming non-digitally – by post, on the phone or face to face – are urgently needed to allow them to receive their entitlements now and for the future,” said Altmann. “Of course, Britain needs to be a modern technologically advanced society, but not at the expense of older generations.”