The government is to ban all unsolicited calls, text messages and emails relating to pensions under new laws that aim to stem the rising tide of pension frauds and scams. Criminals have stolen £43m of pension savings over the past three years, with £5m of that taken during the first five months of this year alone.
Ministers have been under pressure for some time to take action against pension fraudsters. Chancellor Philip Hammond announced a ban on cold calls late last year, but the process was delayed in the run-up to the general election. However, while this plan is being resurrected – and strengthened to include texts and emails – the government has yet to announce when it will put forward legislation to bring a ban into force. Ministers and regulators do not have the power to impose a ban without enacting new legislation.
There are also concerns about the effectiveness of the ban, which will be policed by the Information Commissioner’s Office (ICO). This body has powers to fine companies up to £500,000 for breaches of its rules. But the ICO’s jurisdiction only extends to businesses based in the UK. Many pensions scams now originate outside of the country, with overseas cold callers employed to target British savers; text- and email-based scams can similarly be managed from anywhere in the world.
Nevertheless, ministers hope a crackdown on unsolicited pension marketing will send a message to savers, underlining warnings from regulators and consumer groups that such contact should be ignored. They argue that while pension providers will continue to be allowed to approach existing customers with marketing materials – and to contact any saver who has asked for information – any other pension-related cold call, email or text message should be regarded as a potential scam. The government also plans to tighten the rules on schemes that are allowed to accept transfers from a pension fund, to make it harder to move money into unregulated schemes. The regulation, to be introduced later this year, will restrict the right to transfer if the receiving plan is not regulated by the Financial Conduct Authority or linked to an employer.
The most common scams exposed
Prior to the pensions freedom reforms of April 2015, fraudsters focused on “pension liberation” schemes, which purport to offer people a way to unlock cash tied up in pensions before they reach the age at which such savings can legally be accessed – currently 55. Such schemes see people’s savings shifted into inappropriate and expensive investments, or stolen altogether, as well as exposing victims to large tax penalties if the scheme is discovered.
Today, scams targeting the over-55s are more common, with unscrupulous individuals hoping to exploit the fact that pensions freedom enables people to withdraw some or all their savings with very few restrictions. Scams that begin with cold calls and other unsolicited marketing end up with savers’ cash being diverted into costly schemes, often involving unsuitable and unregulated investments, or outright theft. Even where savers’ money is transferred into legitimate investments, cold callers may not alert them to the potential tax costs of withdrawals. Consumer groups such as Which urge savers to ignore all forms of unsolicited contact from any pension provider or financial adviser with which they do not already have a relationship.
A win for baby boomers
The average income before tax of a pensioner household rose from £10,500 in 1977 to £29,000 last year, after adjusting for inflation, says the Office for National Statistics (ONS). By contrast, the average working household saw their income double from £20,200 to £41,900 over the same period.
The data plays into the hands of campaigners who argue that the older generation has been unfairly protected from economic problems and government austerity, at the expense of cash-strapped younger people.
Much of the increase in pensioner incomes is the result of substantial growth in the value of private pension schemes, with generous benefits available from defined-benefit schemes offering guaranteed pensions often worth as much as two-thirds of pay.
Such schemes have now largely closed to new members, preventing today’s workers from accumulating similar benefits; instead, they depend on pension schemes where benefits are determined by the performance of financial markets.
The importance of private pensions to retired people is also underlined in the ONS data, which shows that those relying on state-pension benefits have done much less well in relation to working people. In inflation-adjusted terms, such benefits have doubled since 1977, rather than tripling as has private-pension income.
Tax tip of the week
The capital-gains tax (CGT) rules include a number of lesser-known exemptions. For example, you don’t have to pay CGT when you sell personal possessions that have a lifespan of less than 50 years. This exemption includes machinery, watches and antique clocks, but doesn’t apply if you’ve used the items for business purposes. Where you are selling a set of possessions, if you sell parts of the set to different people, you don’t have to pay tax on each part sold for less than £6,000 – for these purposes, the government advises that sets include things like chessmen, matching vases and sets of china. Finally, CGT will not be due on the sale of cars; this includes classic cars but excludes single-seater racing cars.