Dealing with bad decisions and combatting scams

The success of Pension Wise will depend in large part on how it prepares savers for the risk of making a bad decision and scammers, says Darren Philp, director of policy and market engagement at The People’s Pension.

He says this is a serious issue as the new pension freedoms will undoubtedly attract fraudsters and scammers. Mr Philp says The Pensions Regulator and the FCA are alive to this concern and the involvement of regulators will help to address the risk.

The greatest risk in this respect is that Pension Wise does not attract sufficient consumer confidence, he says.

Mr Philp says: “If scammers get there first, they could persuade savers to take a course of action before they are aware of the consequences.

“The risk of savers wanting to ‘take control’ of their money by taking it out of the pension scheme before contacting Pension Wise is also very real. Our hope is that savers will speak to Pension Wise first and act later.”

Guidance provided by Pension Wise will help consumers make informed decisions, says Michelle Cracknell, chief executive of The Pensions Advisory Service. Better informed consumers will be less vulnerable to mis-selling, she says.

Ms Cracknell says: “The Pension Wise will not only promote consumer awareness of scams and practical tips, such as checking the FCA’s register to ensure a firm is regulated, it will also be an easy to identify, trusted brand that is directly linked to the government.

“To ensure the Pension Wise brand is not copied, the government has legislated to make it a criminal offence for scammers, or others, to pass themselves off as Pension Wise.

“The Pensions Advisory Service together with the ABI is taking action to raise awareness of pension scams and providing top questions people should ask if they are approached for a pensions review.

“The FCA is also taking action. It has already issued a warning about unauthorised firms pretending to offer the guidance guarantee and recently launched ScamSmart - a new consumer awareness campaign around investment scams.”

Pension providers and trust-based pension schemes will be required to ask a specific set of questions and point customers towards regulated advice, as a ‘second line of defence’, when they wish to access their DC pension pot, says Richard Wilson, policy lead for defined contribution at the National Association of Pension Funds.

Mr Wilson says the FCA has already sent a letter to pension providers responsible for contract-based pension schemes explaining this, and it is expected the same will apply for trust-based schemes regulated by the Pensions Regulator.

Looking at the nature of the risks involved with flexi-access drawdown, Mike Morrison, head of platform technical at AJ Bell, agrees a second line of defence may seem like a sensible approach.

However, like many things in life, Mr Morrison says it is important to also consider some of the practical challenges.

“Is talk of a second line of defence an indicator of sound pension policy or perhaps an indication that some aspects of the rules fall into the category of going too far too soon? It is reasonable to question whether someone who has decided to take benefits will place a great deal of value on a risk warning provided by a provider.”