From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Regulators must do more to protect pension customers against scams and high fees

    Regulators must do more to protect pension customers against scams and high fees

    • MPs demand urgent action to protect pension savers from scams and excessive charges.
    • Regulator should devote more resources and produce early warning systems to help avoid scams.
    • Must also ensure more customers receive their free guidance guarantee.
    • Improving transparency and clearly disclosing charges should be mandatory to help consumers compare products – not just a voluntary code.
    • MPs also demand Government stop forcing lowest earners (mostly women) to pay 25% ‘penalty charge’ if their employer uses a Net Pay pension scheme – huge scandal brewing!

    The Commons Work and Pensions Select Committee is doing excellent work to highlight important areas for improvement for pension customers. The MPs are right to point to the risks of scams, the inadequate take-up of guidance and advice, the need for mandatory, rather than voluntary, cost disclosure formats and the ongoing injustice of low earners being forced to pay 25% extra in their employer’s pension. Investors cannot currently compare pension products and identify which are most expensive or likely to be scams.

    Customers need more guidance and advice to help them make better informed pension decisions and avoid scams. Take-up of the Government’s free ‘guidance guarantee’ is worrying low and needs to be urgently improved, to better protect customers. The pension freedoms were designed to be accompanied by guidance and advice to help consumers make informed decisions about their retirement income. Yet customers are too often left at the mercy of providers’ helplines, which merely direct them to their own products, or fall victim to slick sales staff who entice them into scams. Withdrawing money from a pension or shopping around for the right drawdown or annuity product involves complex questions which most people need help with. Ideally they should have independent financial advice, but at least guidance can help them consider most vital issues.

    Preventing scams is essential to maintaining consumer confidence in pensions: Stronger measures to reduce the scourge of scams could be urgently introduced to protect customers better, such as:

    • Ensuring customers are automatically enrolled for their free PensionWise guidance appointment before taking money out of their pension – and having to apply to an independent body to opt out
    • Increasing the numbers of Regulatory staff devoted to scams – FCA apparently only has ten dedicated staff and they have to call on many different parts of the Regulatory team for input. A more joined-up approach is needed with more staff to monitor the market
    • Producing a central Register of suspected and proven scams that can provide an early warning system to pension providers, advisers and customers to warn against transferring money to them
    • Producing a ‘Financial Offenders Register’ that can alert people to individuals who have been associated with fraudulent investment advice and scam schemes in the past

    Displaying prices clearly for customers should be one of the most basic elements of a product sale, yet in pensions it seems to be an ‘optional extra’. Currently, firms can decide how to display and structure their charges. Standard templates for cost disclosure have been drawn up by industry working groups, but they are not mandatory. This is like shoppers going into a supermarket and seeing similar-looking products on the shelves, but the prices are hidden. How would they decide which to buy, or know how much they will have to spend? Regulators have suggested they want to wait to see whether the current system will be good enough for customers – but the Committee is right to suggest it is obvious that mandatory measures are needed.

    Transparency is vital to help employers and workers make better-informed decisions: By leaving providers to choose whether to use these standard templates or not, those with something to hide are unlikely to voluntarily disclose them in a standard format. This leaves many pension customers in the dark about how much they are paying for their pension and providers able to charge excessive fees.

    Yes, product features and customer service are important too, but price is a basic essential for customers: Customers may be willing to pay more for special features or better quality service, but this should be a properly informed decision. Non-price elements are not as easy to judge and if providers are not forced to disclose their charges clearly, consumers are in too weak a position to compare products.

    MPs once again demand Net Pay Scandal must be resolved urgently – but Government seems in denial: When it comes to pensions, most workers are at the mercy of their employer’s choice of pension scheme. However, employers are also often unable to compare the costs of different schemes and whether they represent good value for money. A classic example of this is the use of Net Pay pension arrangements by employers who have lower-paid staff. Over 1.5million workers, who earn less than £12,500 a year, are being forced to pay the equivalent of a 25% ‘penalty charge’ in their employers’ auto-enrolment pension scheme. Most small businesses and their staff cannot be expected to understand the complexities of tax relief and pensions administration, but this is creating a major social injustice affecting the lowest earners in the country. Most of those affected will be women, working part-time, and the Committee is rightly calling on the Government to remedy this injustice urgently. I am working with an Industry Group which has developed practical proposals to ensure these low earners can recoup the excess costs they are being forced, unknowingly, to pay. Let’s hope the Government acts quickly to remedy this injustice.

    4 thoughts on “Regulators must do more to protect pension customers against scams and high fees

    1. Hi Ros
      Your absolutely right about the costs and fees. I have never understood why they cannot be clearly stated as they would be in any other business field. Why does the industry find it so difficult? Quite simply where there is an incentive to make money from peoples ignorance then there will always be people around to support that.

    2. Your comments on the net pay problem are particularly important as this scams up to £65 a year out of low-earners hard-saved pension pots. Surely we can do more to protect the financially most vulnerable than promise them an incentive and only pay it – if they are have an employer who luckily chose the right system of payroll pension deduction

    3. Just trying to help three clients to get money back from DB Transfer; Maltese QROPs and illiquid high risk funds- involved parties are unauthorised introducer (linked to end investment I think) regulated U.K. advisor, an overseas investment advisor (clients didn’t know they even existed but were assigned by by QROPs as far as I can see) and Maltese QROPs- most funds tied up, massive exit penalties.

      There are several reasons this happened- one is the greedy preying on the vulnerable but also the vulnerable not being able to find a proper UK advisor to help them with their pension/debt needs. They couldn’t find a UK Advisor to help as they were vulnerable. PTS advice by UK advisor all done from a distance, never spoke to her and just went on CY and then said don’t transfer – never checked to see if she got this advice or even spoke to her.

      I hadn’t realised that this was possible – forms mainly out of business so redress may be in the hands of FSCS who can only help up to £85k- not much good if you have lost £100,000s in poor DB Transfer. Still awaiting outcomes.

      Client and I didn’t know where to start at first or whether police should even be called in.

      I am not in favour of removing client choice but we have to find a way to educate people about these scams and how the regulated advisors could have done this without ever talking to the client I just don’t know.

    4. London Capital and finance sold bonds and ISA for a total of £236 million and paid £60 million to Surge in commissions.
      Investors were not aware.
      How can a firm give a quarter of its fund to Surge Financial, which promoted it over the internet, and manage to pay an interest of 6-8 % ?

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