After much unnecessary prevarication, the Government has finally, as of 9th January 2019, banned pension cold calling and introduced a fine of up to £500,000 for those who break the rules.
The big question is “Will it work?”. And the short answer to this is “On its own, no!”.
Banning something does not stop it happening. Burglary is against the law. As is driving without MOT or insurance. And these events (sadly) continue to happen. Those who perpetrate the offence are not dissuaded by the potential consequences and pension scammers will, undoubtedly, fall into the same category.
Indeed, many of the scammers are based abroad so it is hard to see how they can be effectively pursued and prosecuted.
But a ban is to be welcomed. It is another layer of laws designed to prevent people being conned out of their hard-earned savings by smooth talking fraudsters whose only motivations are greed and self-interest.
The root cause of this increase in pension fraud is the Pension Freedoms introduced in 2015 (for what some would argue was electoral purposes rather than any grander motivation). Prior to that, pensions were, for most, a case of buying an annuity at retirement once the maximum tax free cash had been taken.
Pension Freedoms allowed people to sidestep annuities and deal with their pension fund as if it was a savings account. Consequently, huge amounts of cash that had hitherto been locked away potentially became available and the lure of this was simply too much for the scammers to resist.
Latest estimates are that those who have come forward have lost, on average, £91,000 each. This figure is quite possibly a significant underestimate as many victims simply haven’t been identified.
Of those victims known about, there is a consistent refrain along the lines of “I didn’t understand what I had/could do/the risks”.
In other words, people who have been defrauded did not have the education to understand what they were doing. That is in no way to say these people were uneducated – indeed, many would be considered clever by any other measure – it is to say that they were not given the opportunity or resources to understand what they had and what they were potentially getting themselves into.
So, where does this responsibility for education lie?
Many will point to Government. But, given the current climate, does anyone really expect Government, either directly or indirectly, to embark on such a programme?
As the “baby boomers” approach retirement, the amount of funds available will grow largely as a result of company sponsored pension schemes. So, is it employers who should take up the mantle?
Many employers will feel a moral obligation to educate their staff about retirement and the options retirees should be considering as well as pointing out the pitfalls. But the fact is that those same employers will feel they have neither the knowledge or resources to deal with an incredibly complex area that has such an effect on peoples’ lives.
Engaging a Financial Conduct Authority regulated Independent adviser – Richmond House Corporate Services, for example – to give advice to those approaching retirement will be the most cost effective option and will demonstrate to employees the commitment their employer has to their financial wellbeing.
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Peter Murphy Dip PFS