Written evidence from Pensions Advisory Service (PFC0075)

 

  1. What are people doing with their pension pots and are those decisions consistent with their objectives? Is there adequate monitoring of the decisions being made?

When freedoms were first introduced many questions received from customers focused on what the changes would mean for them and if they were eligible to access their benefits. As expected, most questions in 2014-2015 were regarding the new option of cashing in the whole pension pot. The table below shows the value of pots cashed by customers that used our service. The chart indicates that over half of funds were less than £10,000 and the larger pots of £1 million or greater were roughly 2%.  

 

More recently, we have seen the ‘dash for cash’ enquirer decreasing and we now have more people asking about the other options available to them. Often the query relates to how the customer is able to access their benefits most tax efficiently and/ or what the tax implications would be depending on the various options they could take. Others show that customer now wants to utilise the 25% tax free cash for non-retirement purposes e.g. paying off debt/mortgage/children and can be seeking further guidance on the remaining balance or reassurance about their rights.

 

More recent queries have seen members of defined benefit schemes wishing to take their cash equivalent transfer value in order to take advantage of the freedoms. These customers need to take regulated financial advice before transferring; they contact us with questions on how to access this particular type of advice.

 

Our 2016-2017 exit poll survey on Pension Wise appointment indicated that the majority of customers’ next step is to go back to their provider to action or discuss next steps.

Action

%

Contact pension provider

53%

Shop around by contacting other pension providers to see if there is a better deal

21%

Speak to a financial advisor

15%

Seek more information from another source

7%

Unsure what steps should be taken next

2%

None of these options apply

2%

 


Freedom and choice enquiries

2014 – 2015 enquiries

2016 onwards enquires:

Trigger for contact

The tables below show the trigger that caused the customer to contact TPAS. There is a comparison of the change in triggers from 2015-2016 to 2016-2017 and the variation between channels.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject matter

 

 

  1. Are people taking proportionate advice and guidance and if not, why not? Are people adjusting behaviour in response to advice and guidance?

 

More people should be taking up guidance at all stages and there should be more signposting to the freely available pension guidance through TPAS, Pension Wise and MAS. There is clear evidence that shows that customers who use guidance get value from the service.

 

The story that gets missed is that we have seen an increase usage in our service. We were contacted by 205,400 customers in 2016-2017, which represents an increase of 143% on 3 years ago. Our customers are seeking guidance both in the accumulation and decumulation stages. In addition, we had 3.3 million visits to our website in 2016-2017.

 

Our service shows that people seek guidance at different life events rather than pro-actively reviewing their financial position or reacting to advertising.

 

Life event - change in relationship

“I am a retired police officer in receipt of my pension, and going through divorce at present. The rest of the assets have already been agreed. My pension is my only source of income, where do I stand please?”

 

Life event - bereavement

“Hi, I'm enquiring on behalf of my mother who is sadly deceased. When she was a teenager/in her early twenties she worked for a shirt company in Belfast and I always remember her saying she paid into a pension scheme and she never heard any more about it….. I thought I'd have a go at trying to find it. I've already contacted the Pension Tracing Service Team but they were sadly unable to trace anything. I appreciate this is a very vague brief but the Pension Tracing Service Team suggested I contact you to see if you can help”

 

Life event -change in employment

“I am now self-employed having left full time employment that had a Final Salary Pension Scheme (16 years). I am looking at options to contribute to a pension plan. Can you advise me the best package please? Should I go for a Stakeholders' Plan, PPP or whatever? Also what providers should I go with? Your advice would be appreciated.”

 

        The pension freedoms legislation has introduced a potential new norm where people are accessing their pension savings when reaching age 55. It is too early to say whether this will continue or whether it was a blip created by the pent up demand for cash created in the time between the Freedoms being announced and them coming into force during 2014-2016.

 

We continue to look for opportunities to make customers aware of our service at life events. For example, we recently introduced a divorce appointment service to offer guidance to people going through a divorce on the pension decisions they need to consider. The FCA has published a paper showing that people are particularly vulnerable during relationship breakdowns and this is one of the reasons we are offering this service at this particular life event. We are now seeking to get relevant organisations that deal with divorce to promote this service.

 

We do not track a customer after they leave our service but we do collect information on what people say they are going to do, which we can share. We know that some people explicitly say that they are going to change their decision because of the guidance provided by our core service or during a Pension Wise appointment. Some people use guidance as a means of checking their rationale and understanding for the decision that they have already made and to make sure that they have not missed anything that could impact their position.

 

We have evidence that guidance leads to customers being enabled to making more informed decisions.

 

“Thank you so much for promptly replying to my e-mail with great detail and clarification on issues which I had enquired about regarding my pension entitlement. I really appreciate the time and effort in which you have made in regards to all of this. I have definitely gained invaluable knowledge and information on my pension entitlement. I have already put forward my concerns to my management regarding my pension entitlement, and will also ask them about the staging date in which you had advised me of above, sometime this week. I will certainly forward copies of the correspondences to you if I do not receive a satisfactory response regarding the issue, as advised. Thank you again”

 

“Just to say thank you very much for your excellent reply. It is a very clear explanation and leaves me in no doubt where I stand. I think the only option available to me is to enquire whether I can transfer to the new scheme, which I may have done sooner had I not been under the impression that the company was seriously considering equalising contributions.”

 

“Thank you very much for this speedy and excellent response. I think your first para 'I'm afraid...' confirms what I thought the situation might be! Once I've read everything you've directed me to, I can at least take a much better informed 'punt' on the matter. With thanks and best wishes”

 

We therefore believe that there is a need to introduce interventions that makes it a social norm to seek guidance in order that people change from being recipients of pensions to consumers of financial services. We support the following interventions:

 

  1. To what extent will pension dashboards enable consumers to make more informed decisions about their retirement savings? What are the remaining obstacles to their creation and success and how should those obstacles be overcome?

 

The pension dashboard is an important initiative but, on its own, it may not enable people to make informed decisions. It will provide them with the information that is needed to consider the options relevant to their personal situation.

 

A pension dashboard should not be a sales tool for providers and advisers. It should be primarily to help members of the public. The commercial driver for a dashboard is likely to be focussed on consolidation, which may nudge people into transferring pensions when it may not be the best course of action. Consolidation has been a key driver to the Australian dashboards.

 

Our preferred option is that there should be one pension dashboard that is hosted by the Single Financial Guidance body. Multiple dashboards may not engender trust, may confuse customers as different messaging could be delivered by different dashboards and could result in facilitating pension scams. One dashboard from the SFGB would overcome confidence issues and allow for clear messaging about what the customer has saved so far. The customer should have the option to elect for the guidance specialist to access his/her records on the dashboard, which will reduce the time taken on delivering the guidance and improve the guidance.

 

The dashboard will not be a “Silver bullet” for customer engagement with their pension. International experience reflects the fact that people will not start using the dashboard unless it is introduced as part of an overall campaign to promote awareness of pensions. Sweden has run its “orange envelope” campaign, a regular prompt for customers to check their pensions, alongside its dashboard to drive usage.

 

It is important that the necessary support structure exists around the dashboard to avoid customers making poor decisions based on accessing information on the dashboard that they do not understand. For example; we have evidence of customers that think receiving a transfer value on leaving a defined benefit scheme means that they no longer have a pension promise. People need to be able to use different channels to support the digital dashboard.

 

“I was employed from 1983 to 1998 and have a Final Salary Pension. I am now a "Deferred Member". I have received the Transfer Out forms and been given a Guaranteed Transfer Value. Therefore, effectively it is not a final salary pension. Can I consider it a normal pension from now on? It seems that the Pension Wise people will not discuss it. Due to personal business issues I need to withdraw the tax free 25% from both. Neither of the pension administrators will let me leave the 75% balance in their schemes, I have to draw-down the pensions. My idea would be to transfer out  then withdraw 25% and leave the remaining balance until I retire in 10 years. Is this possible? Does this type of scheme have a specific name. Obviously I want to minimise my tax liability. Many thanks”

 

Some schemes and providers do not wish to co-operate with the dashboards project as it currently stands if the outcome is that it benefits competitors who are active in the pension transfer market. Without making it mandatory for all schemes and providers, one dashboard hosted by the SFGB could also create more trust with those that are currently resistant as they will be able to recognise that the dashboard would not have a primary commercial motive.

 

  1. Is Pension Wise working? If not, how should it be reformed? Are there any implications for the proposed creation of a new single public financial guidance body?

 

Pension Wise provides a good service for looking at the options for accessing a defined contribution pension pot. For most customers, it is looking at a small part of their overall pension position. The longer term impact on retirement savings is yet unknown and will need to continue to be monitored. We are pleased to be an appointed delivery partner for Pension Wise as TPAS has a long history of providing guidance on retirement options. We have worked with Pension Wise to ensure that customers who need broader pension guidance are redirected to TPAS.

 

The most important aspect of helping people with their pensions is having the specialist knowledge, which is essential to delivering personalised guidance. This is essential in the pensions and retirement space where given the legacy issues, rate of change and low levels of engagement in this issue, people often do not know what pensions they have and struggle to articulate what they need.

 

Face to face delivery may meet some specific needs that are otherwise hard to achieve through the telephone. In October 2016, Money Advice Service closed its face to face channel as it was disproportionately expensive from a cost benefit analysis.  While we agree that a face to face service is necessary for some people, we feel there could be more effective channel management and alternative methods of delivery for example digitally assisted face to face (where a specialist is “patched” into a face to face conversation). This would deliver cost savings that could be used to deal with higher customer volumes and it would be a better offer for the customer. For example; customers could be offered a diagnostic 15 minute call by an experienced pension specialist, which may then refer them for a full 45 minute appointment, if needed.

 

The SFGB should be looking to make it a social norm for people to seek guidance on money matters including their pension. In order to create these new social norms, intervention is needed as referred to in our answer to question 2.

 

  1. Are there persistent gaps in the advice and guidance market and what might fill them? Is automated advice and guidance filling gaps as expected?

 

There is a market failure in the advice market. Impartial and independent guidance (delivered by the SFGB) can be used to help bridge the gap and support the advice market – this was part of our response to the initial FAMR consultation:

 

 

Automated advice is not yet transformational in the pensions market (it may be that other forms of financial services can be well served by automated advice) because of the pensions long tail combined with the low level of pensions knowledge (people do not know what they have and there are many different types of pensions that offer very different options). It does not yet feel to us that this is a well-protected area for consumers. As our answer to question 3, it is essential that there is a guidance infrastructure to support digital pensions information.

 

  1. Is there evidence of product market competition resulting in cheaper, clearer or wider products for consumers? Are people switching from their pension provider in accessing their pots? Is an adequate annuity market being sustained?

 

Not responding  

 

  1. Are the Government and Financial Conduct Authority taking adequate steps to prevent scamming and mis-selling?

 

Scamming within the pensions landscape continues to challenge the pension industry, public and consumers bodies and the general public. It is difficult to identify the true scale of the scams that have been undertaken due to people not reporting or being aware that they have been scammed.

 

Over the last few years, the nature of pension scams and the techniques scammers use continue to evolve into more sophisticated and complex methods; TPAS’s service has seen how scams have shifted from traditional pension liberation cases to scams where legitimate investment vehicles are used but the underlying investments are toxic and extremely high risk.  However, there has been a positive trend in individuals coming to our service to check before they proceed with a ‘too-good to be true’ offer, highlighting that consistent and sustained messaging to help raise awareness of the issues is essential in combatting a very real threat to pension savers.

 

As a partner of Project Bloom, a multi-agency taskforce of government, regulators, financial service bodies and criminal justice agencies, we have worked closely with The Pensions Regulator, the FCA, Action Fraud and other partners to build awareness campaigns, providing consistent prevention messages and promotion of the effective customer journey. This ensures that savers get the guidance they need efficiently and effectively, to help protect their pensions and disrupt the scammers.

 

We welcome the Government’s proposals to legislate against pension related cold calling and acknowledges that it will support in the fight against pension scams, but ending cold-calling will not be a cure-all to the problem. Pensions are too rich pickings and easy targets for scammers to ignore. It is therefore essential, that there is a continued drive for consumer awareness within this space, as it is clear that a very low understanding and knowledge about how pensions work generally, often means that consumers can find themselves lured in by illegitimate offers or inappropriate investments.   We have provided a separate briefing on scams which can be found on page 11.

 

We would welcome a consumer public service awareness campaign on pension scams.

 

  1. Are the freedom and choice reforms part of a coherent retirement saving strategy? To what extent is it complimentary to or undermined by other policies? 

 

Before the pension freedom legislation, some people were locked into retirement options that did not reflect the change in retirement patterns. Specifically, some people ended up with very small, poor value annuities as they were just above the trivial commutation limit and this was the only option for them. Therefore, there was a legitimate need for savers to be able to access their pension pots in a different way. For this reason, we supported the introduction of the pension freedoms. The reforms have provided individuals with much more choice about how to access their money from age 55 reflecting the different retirement paths that people are taking.

 

The key issue is helping people to take personal responsibility for their retirement income. This requires a cultural adjustment from people being recipients of pensions to informed and active consumers of financial guidance, who feel empowered and equipped with the right tools to be able to make informed choices that will benefit them the remainder of their lifetime. To be able to achieve this, it is important that the seeking out of guidance becomes a normal practice, improving people’s ability to save for the long term and to reinforce their financial resilience.

 

There are valuable learnings from previous policy changes, such as automatic enrolment, which has been successful in increasing the levels of new membership in schemes and getting more people saving. Before its introduction individuals, particularly younger cohorts, were aware of the need to save for the future but did not know how best to achieve this. Automatic enrolment has been successful through its automation and normalisation within the workplace, therefore the next step with pension freedoms is to replicate this and make having guidance the social norm. This will require interventions that we have referred to in our response to question 2.

 

 

Pension scam briefing

 

Authors: Lauren Potts

Data period: April 2015 – September 2017

 

 

Overview

For many, pension savings can offer financial security throughout retirement and for the rest of their lives. For others, a pension can help support career choices, pay off debt and provide for those who mean the most. Pensions are one of their largest and most valuable assets that people have. Unfortunately, like anything valuable, pensions can become the target for fraudulent, inappropriate or scam related activities.

 

Scammers are persistent and often sophisticated in their techniques to ‘hook’ people in, offering at best, inappropriate, high risk and often questionable investments and, at worse, stealing people’s entire retirement funds. As scammers evolve, their behaviour reflect changes within the pension’s world. It is unsurprising to see more people being lured into illegitimate offers.

 

The purpose of this insight document is to highlight the ongoing challenges faced by the industry, the public and consumer bodies in the fight against scams. It will look at the current and future challenge, what work has been done to date and what is still to be done to help combat this constant threat.

 

This document also contains example queries we have received to our service between 2015 and 2017 and an outline of the customer journey used across government for internal and external communication purposes.

 

 

 

1.             Pension Scams: The challenges

 

The issue of pension scams continues to challenge the pension industry, public bodies and the general public.

 

It is difficult to identify the scale of the scams that have been undertaken to date. According to Action Fraud[1], almost £5million was obtained by pension scammers in the first five months of 2017 and reported that over £43million has now been unlawfully obtained by scammers since April 2014, with those targeted having lost an average of nearly £15,000, as scammers try to encourage savers to part with their money with false promises of low-risk, high-return investment opportunities. However, data collection on this issue is difficult to enumerate and the actual amount of money lost to pension scams may be much higher.

 

Pension scams are not new. The complexities of pension products and investment vehicles within the new and highly changeable pension landscape, coupled with very low consumer knowledge about pensions generally, has unsurprisingly makes them rich and easy pickings for scammers. The risk has intensified with technology making it easy to quickly put together convincing websites and to obtain personal details of potential pension members. Scammers have also been using the ‘hook’ that it is a government initiative to “review your pension” linking it to the increase in medial comments about changes to the pension system.

 

Over the last few years, the nature of pension scams has changed and it is likely that they will continue to evolve and become more sophisticated. More scams appear to be legal by using a self-administered pensions wrapper or by cashing in the pension in order that the money is invested in high risk investments. Trends suggest that increasing numbers of consumers are moving out of a controlled low risk pensions into high risk investments and are facing a number of challenges;

 

 

 

 

2.             Pension Scams: The Customer journey


In many instances, customers are unaware that they may be the victim of a scam or being targeted but those who do recognise the actual or potential, fraud or theft, tend to report this in the first instance to one of many organisations including (list not exhaustive):

 

Much work has already been done to ensure that the customer journey is as effective as possible in its efforts to protect consumers and disrupt scammers, through the work of Project Bloom, a multi-agency taskforce of government, regulators, financial service bodies and criminal justice agencies. As a Project Bloom partner, TPAS has worked closely with The Pensions Regulator, The FCA and other Project Bloom members to maintain a clear and consumer focused journey, which all partners ensure is delivered through all external and internal messaging.

 

While reporting is crucial for developing the bigger picture in terms of wider investigation, the second step of the journey, signposting to TPAS is the most important for consumer protection. Therefore, it is vital that the customer journey is managed correctly, ensuring that messaging and guidance is consistent, trusted and clear to understand. This journey needs to be constant across all of the reporting, regulatory and government bodies and other consumer organisations in this space.

 

Deviation from this journey through miscommunication, incorrect signposting to other services or having parts of the journey being omitted, will lead to poor customer outcomes, particularly when it is the early stages of the scam and the process can be stopped within a particular time frame.

 

It is our experience that following the correct customer journey can be the difference between stopping a scam and someone losing their entire retirement savings.

 

3.             What has been done to date

 

The broad consensus across industry, government, regulators and consumer groups that pension scams are a very real and present threat to pension savers and that action is needed to help preventing these devastating scams. Lots of work has already been done to help consumers recognise scam activity and develop their knowledge and understanding of the consequences.

 

Campaigns and raising awareness

As well as working towards a consistent and effective customer journey, considerable work has also been done in raising awareness about the signs of a scam and how to protect pension savings. Work has includes targeted campaigns from consumer groups, regulators and government bodies looking at how best to spot and stop scam activity. This activity has benefitted from the collaboration and drive of Project Bloom.

 

Successful campaigns have included the Pensions Regulator (TPR) scorpion collateral and the FCA’s ScamSmart campaign that looks at the investment aspect of pension scams. As an organisation, we have also worked collaboratively with the ABI, TPR, DWP and independently to produce low cost social media campaigns and information based videos. In addition, TPAS has developed a dedicated scam tool that is designed to help savers self-serve and identify what might be scam activity and what the next steps should be depending on their answers. Pension scams have also been highlighted in the national media through programmes such as Panorama and “Rip off Britain” has been at times helpful in raising the pension scam platform and awareness.

 

Scam disruption

While we have seen a positive, increase in customers calling our service to ‘check’ before proceeding, we also have people contact us with complaints about their provider preventing a transfer and insisting that they do wish to move their money to arrangements that look suspicious. There is little chance of lost funds being recovered if transferred to a scam, we believe that the ability for consumers to have a conversation with an independent body about the proposed transaction is an important intervention. We have been working in partnership with Zurich and Phoenix on signposting to TPAS to help disrupt scam activity and offer independent and impartial guidance depending on the circumstances. It is hoped this could be rolled out across providers and schemes to compliment due diligence processes and provide additional safeguards to consumers.

 

Cold call ban

We support the cold calling ban on pensions. In our experience, cold calls and other forms of unsolicited contact (particularly text or email) are the most common ways that a pension scam is initiated – with around 50% of our users asking about scams indicating they had been cold called. For those that do not fall for the offers of free pension reviews and other sales tactics, the calls represent a significant nuisance that add to the stress and strain of the connected generation. The ban will go some way to help disrupt scammers and combat the issue but it will not eradicate pension scams in their entirety as the likelihood of scammers adapting to the change is high. The continued practices of raising customer awareness will therefore be critical in protecting savers and pensions going forward.

 

4.             What is still to be done


While much work has been done to help develop customer knowledge and awareness of scams, the ever changing pension landscape leaves much room for scammers to evolve and change their proposition.

 

Pension freedoms and reporting

The current scope of the scam problem is unknown; there have been lots of media headlines suggesting that the introduction of pension freedoms has spurred on pension scam activities. However, the method for reporting can be a ‘grey area’ and the statistics produced are often not a true reflection of the situation. The nature of more “traditional” scams means that often, the scams being reported today may well have happened anywhere from 6 months to 5 years earlier.  Therefore, it is difficult and too early to know the impact, if any, pension freedoms may have had. A clearer reporting processes needs to be formulated, including the role of Action Fraud, SFO and FCA, as often consumers think that reporting alone will lead to an investigation and a resolution to their difficulties.  

 

Clones

In an attempt to appear genuine, scammers often pretend to be from legitimate organisations, cloning their information and materials. TPAS is frequently a victim of this practice, along with others offering pension services or information. Unlike Pension Wise, where it is a criminal offence, organisations such as ourselves are often used as a disguise for getting people to share their information and engage with scam activities. Examples we have received of this nature can be found in section 5 of this document. Furthermore, we frequently see the practice of scam warning materials produced by TPR being used to ‘bluff’ people into thinking that the organisation they are dealing with is legitimate.

 

The issue is exacerbated by paid for advertising on search engines, with many results returning advertisements that look like links to real organisations, often leading individuals to paid for services or worse, unregulated and unscrupulous scams. An example below:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Early warnings and accessibility

 

As part of our scam checks, we direct customers to the FCA register to check if the firm or organisation they are dealing with is regulated and their status. The register is difficult for consumers to understand with different terms used; for example ‘appointed representative’ (introducer firm) versus ‘authorised’ (Regulated financial adviser). This is further clouded when multiple firms are involved. With no clear warning list available to identify suspect or actual scams, it can be challenging for consumers to identify who they’re dealing with.

 

At present, regulators have limited powers to publish warning lists or notices to users of suspect organisations, due to litigation concerns. In our experience, customers only see warning signs published when it is unfortunately too late, usually once prosecution or action has taken place. Early warning notices would make it easier and more effective for consumer groups and pension providers to highlight the potential risks and concerns. We understand the risks for government or regulators for managing a “white list” or a “black list”. A possible solution would be to have a “white-white list” that contains only main stream pension propositions that are limited to regulated investments. Exclusion from this list does not indicate that the proposition may be a scam but requires extra vigilance by the consumer. This will only assist pension scams that are transferring to another pension but it should assist with these transfers and raise consumer awareness on the lack of protection for unregulated investments even if they are part of an authorised pension scheme.

 

 

5.             The Customer Voice

 

The following questions are a sample of the online enquiries queries received between April 2015 and September 2017 that relate to scams and cold calling as people have experienced it.  The questions received are in the words of the customer and have not been altered, except for the anonymisation of personal information. It is clear, that the length of the questions is illustrative of the increasing complexity of people’s lives and that many have a range of pensions and needs that have to be first untangled and often explained, in order to help them move forward appropriately. Enquires are dated to show how the nature of customer questions have changed.

 

Pension liberation and insistent clients

 

 

 

 

 

“Traditional” scams

 

 

 

Customer’s checking position

 

 

 

 

 

 

 

 

 

Customer concerned or aware they’ve been scammed

 

 

 

 

 

 

 

High risk or toxic investment

 

 

 

 

Clones

 

 

 

 

 

 

October 2017

[1] Action Fraud (2017) Pension Fraud Statistics: www.actionfraud.police.uk/sites/default/files/Pension%20fraud%20statistics.pdf