MPs must ensure Government’s promised cold-calling ban actually works.
Providers should also be required to automatically refer customers to PensionWise guidance.
Financial Guidance and Claims Bill comes to Commons tomorrow for crucial votes – a chance to achieve proper protections, not just worthy headlines.
I hope Government will back Frank Field’s amendments for cold-calling and automatic pensions guidance rather than its own weaker proposals.
An opportunity to improve consumer protection properly: The House of Commons will vote tomorrow, Monday 12 March, on amendments to the important Financial Guidance and Claims Bill. This legislation aims to improve consumer protection and financial education, helping people manage their pensions more effectively and protecting them against cold-calls, scams and unsuitable products.
Government’s amendments are not strong enough – Frank Field has tabled alternative version: Millions of unsolicited approaches every year have resulted in people losing their hard-earned savings in scams or frauds which could have been avoided. There is cross-party political support to ensure that the Government’s promised cold-calling ban achieves as much protection as possible for consumers.
Two measures needed – proper cold-calling ban and automatic ‘default’ guidance: Two crucial consumer protection improvements will be voted on in the Commons. Firstly, banning cold calling effectively and secondly, ensuring people are automatically referred to the independent, impartial guidance service which has been established by the Government to improve consumer understanding of their finances.
Cold calling ban needs to ensure use of leads banned too: In order to protect consumers from cold-calling, it is vital not just to ban these unsolicited approaches, but also to ban the use of leads obtained from them. Only the FCA has the power to enforce this, so regulated pension providers know they risk being put out of business if they sell to customers passed on by cold-callers.
Relying on the ICO will not do the trick: The Government wants the Information Commissioner’s Office (ICO) to implement the cold-calling ban – this is not enough to protect the public. The ICO already bans cold-calls to anyone using services such as the Telephone Preference Service, but this measure is totally ineffectual – customers whose numbers are registered still get constant cold-calls.
ICO tries to catch cold-callers after the fact, not prevent them in the first place: The ICO cannot stop cold-calling. All it can do is try to catch the perpetrators, but by then it is too late. If the cold-callers are based overseas, penalties cannot be enforced. And even if they are UK-based, the company often declares insolvency to avoid the fines. Meanwhile, customers have already lost their money in scam products from providers who bought their information from the cold-callers.
FCA must ban use of leads from cold-calls: To be effective, it is vital that any ban on cold-calling is backed up by a regulatory ban on use of information obtained as a result of unsolicited approaches. If product providers cannot sell to a customer who came to them from a cold-call, then the cold-callers could not monetise the leads, thus removing the business rationale for the cold-calling.
Consumers also need independent, impartial guidance before making pension decisions: The House of Lords also passed another vital amendment to the Bill, which was to ensure more people receive impartial guidance to help them make the right decision about their pension. Before they transfer or cash-in their pension, this legislation could ensure they are referred to the new independent guidance body, currently called PensionWise. This can protect them against scams and also help them understand the risks of cashing-in too early, tax implications of taking money out of their pensions, how to assess what type of annuity they need and how to evaluate income drawdown policies. These are vital pieces of information that most consumers receive no help with at the moment, even though the PensionWise service was set up by the Government specifically for them. Some pension providers ensure their customers get guidance first, but many are happy for customers to phone their own helplines, which are not independent or impartial and which may not give them the help they need.
Automatic enrolment into independent, impartial guidance can help more people use their pensions better: Auto-enrolment into pension saving has been very successful and the new freedoms and choices available to pension customers offer the chance to achieve better outcomes in later life. However, the complexities of pensions and finance mean most people need help, or ideally independent financial advice, to make good decisions. The Government promised everyone a ‘guidance guarantee’ and Frank Field’s amendments would ensure that providers have a duty to refer people for guidance before they decide what to do with their pension. Customers can opt-out, but the process needs to be independent of providers, to ensure people have the best chance to avoid poor products and unsuitable choices.
I hope the Government will withdraw its own weaker amendments and back those of the Work and Pensions Select Committee: Otherwise, MPs will need to take the opportunity to ensure this important legislation achieves as much as it can, rather than merely providing good headlines without going far enough to protect customers properly – or Peers may do so when the Bill returns to the Lords. It is time to act robustly in the consumer interest and make finance work better for the public. This Bill is an ideal chance to do so.