Consultation outcome

Ban on cold calling in relation to pensions: consultation on regulations

Updated 29 October 2018

1. Introduction

This consultation document sets out the policy intentions behind the proposed ban on cold calling in relation to pensions, and invites comments on the draft regulations to implement the ban set out at Annex A. Since the government has already consulted on the policy, this consultation is a technical consultation intended to seek final views on the draft regulations to ensure they meet our policy objectives. This consultation will close on 17 August 2018, after which we intend to make any necessary amendments to the draft regulations and publish a consultation response. Subject to Parliamentary timetabling, we then intend to lay the regulations in autumn 2018.

At Autumn Statement 2016 the government committed to consulting on a ban on pensions cold calling, and subsequently launched a consultation in December 2016. The vast majority of respondents strongly supported the government’s proposed interventions in respect of pension scams. The government responded in August 2017, outlining its approach to the ban. The draft regulations to ban pensions cold calling in Annex A are based on the proposals outlined in the government’s response, and the further consultation the government has undertaken with stakeholders following the publication of the government’s response.

The government created the power to make secondary legislation to ban pensions cold calling through section 21 of the Financial Guidance and Claims Act 2018, which gained Royal Assent on 10 May 2018.

In August 2017, the government also consulted on the costs and benefits of extending the proposed ban to include all electronic communications (i.e. texts and emails). However, there are already restrictions on unsolicited direct marketing via electronic mail through the Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR). Therefore, the draft regulations in this consultation are only concerned with a ban on live, unsolicited direct marketing calls relating to pensions.

The government believes it is important to improve the accessibility and affordability of financial advice. The Financial Advice Market Review (FAMR) has led to significant progress to make financial advice more accessible and affordable. The government and the Financial Conduct Authority (FCA) have now implemented all the recommendations made to them in the final FAMR report. The government continues to assess progress on FAMR’s recommendations and will be carrying out a review of the outcomes from FAMR in 2019. A report will be published in early 2020.

The government also believes it is important to improve the accessibility of financial guidance. Through the Financial Guidance and Claims Act 2018, the government has legislated to merge the functions of three existing bodies – the Money Advice Service (MAS), The Pensions Advisory Service (TPAS) and Pension Wise - to create a Single Financial Guidance Body. This will simplify the existing public financial guidance landscape. Section 18 of the Act provides that, when an individual seeks to access or transfer their pension pot, they are referred for guidance and receive an explanation of the nature and purpose of that guidance. It also provides that, before proceeding with an application, subject to any exceptions, schemes must ensure that members have either received guidance or have opted out. Details will be set out in rules and regulations. 

2. How to respond

The government would welcome the views of all stakeholders on the issues raised in this consultation. The consultation begins with the publication of this document and will last for a period of four weeks.

Please respond by midnight on Friday 17 August 2018. Responses for the consultation should be sent to: PensionsColdCallingConsultation@hmtreasury.gov.uk

When responding please state whether you are responding as an individual or as part of an organisation. If responding on behalf of an organisation, please make it clear whom the organisation represents and, where applicable, how the members’ views were assembled. It would also be helpful if you could indicate whether you are content for your name and/ or the name of your organisation to be published as having responded to the consultation and/ or to have your response published in full.

3. Policy objectives

As outlined above, the government published a consultation in December 2016. In total the consultation received 111 responses from pension firms, independent financial advisers, professional bodies, industry groups, regulators, consumer groups, and individual members of the public. The vast majority of respondents strongly supported the government’s proposals on pensions cold calling.

Based on responses to the December 2016 consultation, and the further consultation we have undertaken with stakeholders following the publication of the government’s response, the policy objectives behind the draft regulations are:

• to ban pensions cold calling (unsolicited direct marketing calls relating to pensions products and services), except in the following circumstances:

• the recipient of the call has given specific consent to receiving marketing calls on pensions from the organisation making the call; or

• the recipient of the call has an existing client relationship with the caller and the relationship is such that the recipient envisages receiving unsolicited calls for the purpose of direct marketing in relation to pension schemes (known as the “soft opt-in”)

• to ensure that the exemptions apply only to firms regulated by the Financial Conduct Authority (FCA) or to trustees or managers of occupational pension schemes that are regulated by The Pensions Regulator (TPR). This is because pensions cold calling is primarily undertaken by “lead-generators” who act as the middle-men between customers and firms.

• to ensure legitimate calls get through. The government is clear that it does not want the ban to have an unnecessary or disproportionate impact on legitimate activities. Consultation respondents noted that there are some calls they were concerned may be captured by a ban which should still be legal. For example:

• calls from advisers following referrals, such as a solicitor referring a customer to a financial adviser
• calls from a third-party administrator of an individual’s pension fund
• calls from a provider to the beneficiary of a deceased member’s fund
• calls attempting to locate ‘gone-aways’

It’s worth noting that the above calls do not constitute marketing activities and therefore there is no intention that they are captured by a ban on unsolicited direct marketing in relation to pensions.

• to prohibit a wide range of activities through which people could be encouraged to access their pensions savings in order to invest in inappropriate or scam investments. The government’s response to the previous consultation sets out the kinds of conversations the government wants covered by the ban. These include:

• offers of a ‘free pension review’, or other free financial advice or guidance
• assessments of the performance of the individual’s current pension funds
• inducements to hold certain investments within a pensions tax wrapper including overseas investments
• promotions of retirement income products such as drawdown and annuity products
• inducements to release pension funds early
• inducements to release funds from a pension and transfer them into a bank account
• inducements to transfer a pension fund
• introductions to a firm dealing in pensions investments
• offers to assess charges on the pension

We are covering a wide range of business activities because some consumers can find it difficult to differentiate between legitimate and fraudulent calls. For example, Citizens Advice research published in March 2016 found that 9 in 10 people would miss the warning signs of a scam. Additionally, an important part of the rationale for introducing a ban is so that consumers will know that no legitimate firm will cold call them about their pension, unless the consumer has given express consent or has an existing client relationship with the caller.

• to minimise loopholes to reduce the ability for scammers to evade the prohibition. For example, scammers might cold call an individual with a ‘lifestyle survey’ to make initial contact, and then call back later to talk about pensions
• to ensure the ban is flexible and can be updated to counter emerging threats
• The Information Commissioner’s Office (ICO) should be the enforcement body and the current civil enforcement regime under PECR should apply
• The Office of Communications (OFCOM) should cooperate with the ICO in the exercise of these functions. This was included in the regulation-making power in the Financial Guidance and Claims Act 2018 giving us the power to make regulations to ban pensions cold calling

4. Definition of scams

The Project Bloom Taskforce ^{[footnote 1]} has developed the following definition of a pension scam:

“The marketing of products and arrangements and successful or unsuccessful attempts by a party (the “scammer”) to:

• release funds from an HMRC-registered pension scheme, often resulting in a tax charge that is not anticipated by the member
• persuade individuals over the normal minimum pension age to flexibly access their pension savings in order to invest in inappropriate investments
• persuade individuals to transfer their pension savings in order to invest in inappropriate investments where the scammer has misled the individual about the nature of, or risks attached to, the purported investment(s), or their appropriateness for that individual investor.”

5. Approach

PECR are regulations which sit alongside the Data Protection Act 1998 . They give people specific privacy rights in relation to electronic communications. We intend to use this existing framework as the basis for the ban, and update the regulations so they apply in the specific instance of pensions cold calling. A similar ban, on cold calls relating to claims management services, was implemented through the Financial Guidance and Claims Act 2018 by amending PECR^{[footnote 3]}, and we want to ensure a consistent approach to both bans.

We intend to amend regulation 21 of PECR, included at Annex B, which relates to marketing calls. Regulation 21 provides for an opt-out model regarding unsolicited direct marketing calls. This permits firms to cold call customers except where:

1. the called line is that of a subscriber who has previously notified the caller that such calls should not for the time being be made on that line; or
2. the number allocated to a subscriber in respect of the called line is one listed in the Telephone Preference Service

We intend to amend regulation 21 to include an opt-in model for unsolicited direct marketing calls relating to pensions. This will prohibit cold calling in relation to pensions unless:

1. the caller on the line is an FCA-regulated or TPR-regulated person and the customer consents to such calls being made by, or at the instigation of, the caller on that line; or
2. the caller on the line is an FCA-regulated or TPR-regulated person and the recipient of the call has an existing client relationship with the caller or instigator of the call and the relationship is such that the recipient envisages receiving unsolicited calls for the purpose of direct marketing in relation to pension scheme

The regulations have been drafted with the intention that they are broad enough to capture a wide range of activities through which people could be encouraged to use their pensions savings in order to invest in inappropriate or scam investments, but also narrow enough that they prevent workarounds and loopholes.

This drafting of the second exemption addresses the concerns of some respondents that fraudsters might approach members on topics unrelated to pensions, and treat that interaction as constituting an existing client relationship allowing them to cold call the client on pensions. The regulations address this concern by specifying that the client relationship is such that the recipient envisages receiving a marketing call on pensions from the caller.

Some stakeholders have expressed concern that the ban may affect the ability of firms to continue to engage in tracing and reunification activities to reconnect customers with their pensions, including where firms have merged or changed structure. These types of calls are not marketing activities so will not be captured by the ban.

We also have the power to make changes to the regulations in future, if needed to counter emerging threats.

Question 1: Do you agree that the proposed regulations achieve the aim of restricting all unsolicited direct marketing calls in relation to pension, bar the exemptions outlined, without restricting legitimate non-marketing calls?

Question 2: Do you agree that the proposed regulations capture the wide range of activities through which people could be encouraged to use their pensions savings in order to invest in inappropriate or scam investments?

Question 3: Do you agree that the proposed regulations are sufficiently flexible and future proofed to prevent the evolution of scam pensions cold calls that circumvent the ban?

Question 4: Do you agree that the proposed regulations prevent ‘workarounds’?

6. Enforcement

6.1 The Information Commissioners’ Office (ICO)

In the December 2016 consultation, the government outlined plans for the ICO to act as the enforcement agency for the ban on pensions cold calling, which respondents were supportive of. The ICO enforces restrictions on unsolicited electronic direct marketing and the current restrictions on direct marketing calls. The ICO has powers to enforce PECR under the Data Protection Act 1998^{[footnote 2]}, including the power to fine offenders up to half a million pounds. In addition, the ICO will be able to enforce bans on lead generators who are the main instigators of pensions cold calls. It is appropriate that the planned ban on pensions cold calling is enforced through this existing framework.

6.2 Sanctions

As outlined in the August 2017 consultation response, the government does not intend to impose criminal sanctions on those in breach of the ban on cold calling. Where individuals are intent on defrauding someone, they are already committing a criminal offence. Law enforcement agencies and the FCA already have powers to tackle fraudulent activity, including the power to pursue custodial sentences for the worst offenders. The ICO already enforces restrictions on unsolicited direct marketing, so it is appropriate that they also enforce this ban on pensions cold calling.

6.3 Overseas firms

As outlined in the August 2017 consultation response, the ICO will be unable to take action against firms located overseas, as they are outside the UK’s jurisdiction, unless the calls are made on behalf of a UK company. Whilst there is no way for the ban to be extended to overseas callers, the ICO has arrangements with international regulators to enable enforcement action in circumstances where companies operating wholly abroad make calls into the UK that would be unlawful if made in the UK. Furthermore, any organisation based in the UK and acquiring personal data through others based abroad must ensure they comply with data protection legislation. The ICO operates simple online reporting systems for consumers as well as a helpline to report instances of unlawful marketing. So, when unscrupulous firms break these rules and make illegal calls, individuals can easily report these illegal cold calls to the ICO.

7. Impact on legitimate businesses

Not all businesses which undertake pensions cold calling are doing so with a view to scamming customers. Whilst their number is small, there are some legitimate businesses which may cold call individuals in relation to their pensions. For example, some respondents to the previous consultation expressed concerns that the ban could impact on new advice firms, which rely on cold calling to generate initial business. Some respondents noted that the ban will affect the business of some financial advisers who use lead generators.

Respondents to the previous consultation confirmed that the impact of a pensions cold calling ban on legitimate businesses should be small to non-existent. The majority of respondents did not think that legitimate firms’ business models would be affected provided express requests and existing relationships are excluded from the ban. Some respondents noted that there are sufficient opportunities for legitimate firms to generate business without cold calling, and many already do not use cold calling because of the stigma attached. Some respondents noted that, for example, the mortgage sector operates successfully even though cold calling is banned.

However, it is important to understand what the impact on the small number of firms undertaking legitimate pensions cold calls may be. This consultation invites views on the quantifiable impact of the ban on businesses that undertake pensions cold calling legitimately.

Question 5: What will be the quantifiable impact of the ban on the legitimate business of firms which undertake pensions cold calling?

• how many legitimate pensions cold calls are taking place?
• how many legitimate pensions cold calls lead to a successful transaction and what is the average value of these transactions?
• how many legitimate pensions cold calls will be captured by the ban?

7.1 Consumer awareness

As noted in the August 2017 consultation response, there was support for a campaign to publicise a ban on pensions cold calling. When the ban comes into force, the government will proactively communicate to the public the message that pensions cold calling is illegal. We would welcome a conversation with stakeholders on how best to publicise a ban on pensions cold calling, including how we might creatively use existing industry and consumer group networks, and media channels.

The government will also work closely with members of Project Bloom to ensure news of the ban reaches consumers when it comes into force. Two members of Project Bloom, the FCA and TPR, are running a pension scams awareness campaign over the summer. This will include the message to consumers that they should put the phone down on pensions cold callers, and that a ban on pensions cold calling which makes the practice illegal is coming into force soon.

8. Guidance

The ICO currently provides guidance for organisations on how to apply the regulations which govern electronic marketing messages by phone, fax, email or text . The ICO intend to update this guidance ahead of the ban on pensions cold calling coming into force.

9. Next steps

This consultation will close on 17 August 2018, after which we plan to make any necessary amendments to the draft regulations and publish a consultation response. Subject to Parliamentary timetabling, we then intend to lay the regulations before both Houses of Parliament in autumn 2018.

9.1 Summary of consultation questions

Question 1: Do you agree that the proposed regulations achieve the aim of restricting all unsolicited direct marketing calls in relation to pension, bar the exemptions outlined, without restricting legitimate non-marketing calls?

Question 2: Do you agree that the proposed regulations capture the wide range of activities through which people could be encouraged to use their pensions savings in order to invest in inappropriate or scam investments?

Question 3: Do you agree that the proposed regulations are sufficiently flexible and future proofed to prevent the evolution of scam pensions cold calls that circumvent the ban?

Question 4: Do you agree that the proposed regulations prevent ‘workarounds’?

Question 5: What will be the quantifiable impact of the ban on the legitimate business of firms which undertake pensions cold calling?

• how many legitimate pensions cold calls are taking place?
• how many legitimate pensions cold calls lead to a successful transaction and what is the average value of these transactions?
• how many legitimate pensions cold calls will be captured by the ban?

1. Project Bloom is a cross-government taskforce led by TPR comprising government, regulators and law enforcement agencies whose purpose is to monitor trends, share intelligence on emerging threats, raise awareness of scams through communication campaigns and help co-ordinate action to tackle pension scams. ↩

2. The ban on cold calling by Claims Management Companies (CMCs) provides an exemption where the receiver of the call has given specific consent to receiving direct marketing from the organisation making the call. However, unlike the proposed pensions cold calling ban, it does not include a “soft opt-in” i.e. an exemption where the receiver of the call is an existing customer of the organisation making the pensions cold call. The pensions cold calling ban also differs in that it specifies only FCA-regulated or TPR-regulated persons are exempted from the pensions cold calling ban. ↩

3. Paragraph 58 of schedule 20 to the Data Protection Act 2018 provides that the repeal of the Data Protection Act 1998 does not affect its operation for the purposes of PECR. ↩