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The good, the bad and the ugly

22 September 2017

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Ian Neale discusses the alternative to simply banning foul behaviours and looks at more successful preventions.

By common consent the legislation we are bound by is unduly complex, convoluted and too damn much. Some of it is undoubtedly necessary. A lot could be improved by better drafting: a focus on the wood as well as the trees.

We can all think of laws we could well do without, though. Regulations that address an imagined offence, of which the government produces little or no evidence that it actually happens or is likely to happen, are one example. 'Just-in-case' is no good reason for swelling the statute book.

Good legislation should not only be evidence-based; it should be enforceable – and enforced. In 2006 a government obsessed with the idea that everyone would recycle their tax-free cash back into a pension scheme decided to ban recycling.

That legislation was a joke: it had no effect, because it was unenforceable. To be caught, you had to shop yourself.

Other legislation while in principle enforceable, is brought into disrepute by not being enforced. Think back to the introduction of stakeholder pensions: employers had merely to designate a scheme. How many were prosecuted for failing to take that simple step?

One, and only then because, again, he self-reported.

This issue has been raised again by the government's new plan to ban cold calling about pensions, in response to their consultation about pension scams. It bears the hallmarks of a knee-jerk reaction to undesirable behaviour: simply banning it won't work.

There's no value in legislation which is unenforceable, or not enforced.

Scammers won't be deterred by legislation making their activity illegal, unless and until the likelihood of being caught and convicted is significant AND the penalty is severe enough to render their activity uneconomic. They often treat fines for transgressions as part of the cost of doing business.

That's all that will happen, by the way: the government does not intend to impose criminal sanctions and custodial sentences on those in breach of the proposed ban on cold calling.

The Information Commissioner's Office, which will be lumbered with enforcing the ban, will need to prove a clear pattern of offences: a concerted effort to reach thousands of potential victims, and that the calls were not exempted by any of the inevitable categories, such as having had some dealing with the firm in the past.

I suspect the government will find it too difficult to draft legislation that defines an offence in such a way that scammers cannot find ways around it.

Only pensions are to be prohibited, so as long as that keyword isn't mentioned, and the message is about any other kind of investment opportunity, the call will be exempt.

Or the scammer could simply skip abroad and carry on, blissfully outside the reach of the ICO.

There are better ways of preventing undesirable behaviour than simply banning it. For example, think of the rules governing investments by member-directed pension schemes (SIPPs and SSASs). Rather than trying to prohibit certain investments, the pensions tax legislation prescribes punitive tax charges instead. That works: people don't put their buy-to-let into their pension scheme.

The way to counter the scammers is to make it much harder for them to succeed.

Thankfully, the government is not, it seems, going to rely on a simple ban.

Moves are afoot to add to the hurdles around pension liberation, starting with a plan to empower HMRC to refuse to register a pension scheme without solid evidence of an active sponsoring employer behind it.

This extension of HMRC discretion amounts to unstated recognition that human behaviour cannot be constrained by legislation alone.

If the limitations are accepted, we may see more of the good and less of the bad and the plain ugly which litter the statute book today.