The government was defeated in the House of Lords on Wednesday night by an amendment to the financial guidance and claims bill, which sought to bring forward plans to ban pensions cold-calling.
According to the Financial Conduct Authority, 30 per cent of defined contribution members with plans to retire in the next two years have received unsolicited approaches about pensions or investments in the past 12 months.
Of those who have been approached, 5 per cent have responded to offers made via cold calls.
My objection is to the idea that you can, by simply passing legislation to ban something, effectively prevent it
Ian Neale, Aries Insight
The amendment to the bill was tabled by Liberal Democrat peer John Sharkey. With cross-party support, it defeated the government by 253 votes to 205.
The House of Lords will now debate an amendment to the bill that calls for default guidance for pension savers looking to transfer out of their schemes.
Parliament needs to act
The government has sided with appeals for a ban on cold-calling for pensions, but has said that legislating against them may have to wait until 2020.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said he was in favour of a ban on cold calls, but he recognised the government’s caution over the wording of legislation against cold calls.
“If you're not careful, you stop legitimate businesses from talking to their customers,” he said.
“So whilst there is widespread support in principle for a ban on cold-calling as a way to curtail the activity of fraudsters, I think the government’s always been a lot less comfortable and a lot less certain about how they were going to implement it effectively without causing unintended consequences,” he added.
Tom Selby, senior analyst at platform provider AJ Bell, disagreed with the need for patience over a ban on cold calls for pensions.
“I’m not sure I buy the idea that stopping legitimate business is the reason that they’re not able to do this,” he said.
He argued that a ban on cold calls would not affect existing relationships between businesses and customers.
“If there are any little wrinkles that need to be ironed out, then all the more reason to get this stuff in front of parliament now,” he said.
“At the moment, we don’t even have something going into statute that we can debate, so until we get to that point then we’re not really going to get anywhere,” he added.
A ban on cold calls might be unenforceable
The government carried out a consultation on pension scams in December 2016, and concluded that introducing criminal penalties against speculative calls would not put a stop to them.
Ian Neale, director at policy specialists Aries Insight, was sceptical of the enforceability of a ban on cold-calling for pensions.
“My objection is to the idea that you can, by simply passing legislation to ban something, effectively prevent it,” he said.
Neale argued that fraudsters would build the risk that accompanies cold-calling into their business model. They may also move offshore in order to circumvent the ban.
“Any ban, in my opinion, that’s put on the statute book… will not work unless and until the perpetrators recognise that there is a significant risk of them being caught, and when they’re caught, suffering such a financial penalty that it will render their business model unviable.”
He added: “There’s a danger that the vagueness of it and the gaps which would inevitably arise would bring the law into disrepute."
Savers should seek advice before transferring out
A further cross-party amendment to the bill is to be debated in the House of Lords on Tuesday, which will examine the case for enforcing default guidance for savers looking to take money out of their pensions.
Former pensions minister Ros Altmann said the amendment was an attempt to increase the number of people using guidance services before conducting transfers.
Government reaffirms commitment to cold-calling ban
In August, the government has announced that it would introduce its long-promised ban on pensions cold-calling “when parliamentary time allows”, putting to bed concerns that a second consultation would further delay the legislation.
“At the moment, too many people are not having enough information before they make these decisions,” she said.
A cross-party group is set to meet before the vote. Altmann anticipated support from across the political parties in favour of default guidance for members who want to transfer their savings from their schemes.
