Pension cold calling ban comes into effect by Andrew Houghton

The long-awaited ban on pension cold calling came into effect on Wednesday (9th January 2019).

As those who have been following closely may remember, yours truly commented back in July that it was time to cut to the chase on this matter rather than introducing protracted further discussions. In a welcome move, the legislators appear to have listened.

Pension scams typically operate with an unsolicited phone call, letter, text message or email offering the recipient a free ‘pension review’ and/or the chance to make exceptional returns. They typically promise returns way above market average or guaranteed gains investing in exotic and non-mainstream assets, often property related. If you’re reading this, you don’t need me to tell you that in today’s fee paying advice market, anything offered as ‘free’ is highly dubious, whilst guaranteed returns don’t exist outside of interest paying accounts.

Another variant on the scam is to contact customers offering them the option to access their pensions early, known as a pension release scam. This may be sold as a ‘loan’, ‘saving advance’ or ‘cashback’. The client’s pension funds will be transferred from a registered legitimate pension scheme into one set up by the scam. This new scheme is often based abroad where regulations may not be as stringent.

The client may be ‘loaned’ an amount with the company involved taking a fee, often as much as 30%. This fee is often unclear and doesn’t include the tax owed for accessing the pension early. Clients can find that they owe a tax bill which they were not informed about at outset and which can wipe out their remaining pension savings. Citizens Advice have estimated that prior to the ban, 10.9 million unsolicited approaches where made per annum, with your average victim losing £91,000.

Following the ban, cold calling is only permitted where the caller is authorised by the FCA, or is the trustee or manager of an occupational or personal pension scheme, and the recipient of the call consents to calls, or has an existing relationship with the caller. Concern has been expressed in some quarter, however, that experienced scammers will simply flout the ban, an offence which now carries a fine of up to £500,000. The reality is that where the scammer is based in an offshore location, enforcing this is likely to be more easily said than done.

In reality, when it comes to defined benefit transfers, trustees ought to be carrying out checks on the receiving scheme and confirming the receipt of professional financial advice (where the CETV exceeds £30,000) before making any transfer. Where the scheme’s bona fides cannot satisfactorily be established, a transfer payment should not be made.

Before it gets to this stage, however, you as a professional adviser should be clear on your client’s motives for considering the transfer. FCA rules require the adviser to consider the appropriateness of the existing arrangement when advising on a defined benefit transfer, even where the client is a so-called ‘self-investor’ or the scheme is an overseas one. Ideally, the destination for the funds should be solely the recommendation of the adviser and it goes without saying that a conscientious professional should also check the authorisation of the receiving scheme. Likewise, even where your advice is to remain in the scheme, having received this advice, the client could then proceed to undertake a transfer against it.

Consideration should be given to incorporating this as part of your advice process, specifically checking that the client is seeking advice of their own accord and not due to any unsolicited third party contact. No ifs, no buts, anyone cold calling a client regarding their pension assets is now breaking the law. However, that’s not necessarily to say that the client would be aware of this, or can’t be talked round by a persuasive scammer. In today’s climate, it’s an issue worth making sure they are aware of. It’s also a potential ‘factor to consider’ which may pick you up that all-important mark or two.