Main Menu

Warnings that reforms spell danger

New mis-selling scandal ‘inevitable’ over pension reforms says Scottish Friendly

pension potsA new mis-selling scandal is “inevitable” as fraudsters move in on the government’s pensions reforms, says one of Scotland’s biggest financial institutions.

Retirees are already being targeted by unscrupulous advisers forcing them to surrender policies on the back of the forthcoming changes.

The UK government is introducing so-called “freedoms” into the pensions market, allowing retirees greater access to their savings. But financial advisers have been warning for months that there were dangers of another scandal if it is not properly supervised.

Scottish Friendly says the regulator needs to take firm action now to protect retirement savings  “before the horse has bolted.”

Despite the pension legislation offering individuals more control and flexibility around how to manage their retirement funding, Scottish Friendly is concerned that the UK will see large numbers of pensioners targeted by salespeople bent on separating them from their lifetime savings, with particular concern being the buy-to-let market.

Neil Lovatt, product director, said: “There are great opportunities in these reforms, but also real dangers. A mis-selling scandal of some description is almost inevitable as pensioners get targeted and exploited.

“The biggest concern is that pension assets will be used and abused outside the confines of the protection currently afforded by the regulated financial services sector and individual advice.”

He says one particular area of concern is the buy-to-let market. “The danger is that people with substantial pension funds will be encouraged to withdraw them, probably on poor tax terms, to invest in a buy-to-let property or worse put down a substantial deposit on a mortgaged buy-to-let property.

“Whilst tempting for many to invest in a ‘real’ asset, the simple fact is investing in such a way will inevitably leave some pensioners high and dry. With such volatility in the market and the potential to be caught in property bubbles, it is likely that we will see a large number of pensioners at risk of losing their retirement savings if the market turns against them. Ultimately we will only know if people get mis-sold investments if pensioners find themselves left out in the cold, but by that time, it will already be too late for many.

“Short of a politically unacceptable U-turn on the policy, we need the Financial Conduct Authority to take a more definitive stance to present strong negative risk warnings about using pension benefits for unregulated investments or doing so without detailed personal advice from a qualified financial adviser. Its predecessor, the Financial Services Authority did so in the past with precipice bonds and the structured capital at risk product regulations (SCAPRS), albeit after the horse had bolted.

“We need strong and brave action from the FCA to close the gate whilst the horse is still in the stable. Doing so now can help to protect those in retirement so they can safely enjoy the freedom and flexibility the reforms were designed to allow.”

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.