With the so-called “pensions freedom day” just around the corner (April 6), there is already much talk about a spending-spree for any over 55s seeking to reinvest their newly withdrawn lump sums into higher yielding assets. Sellers of vintage cars, buy-to-let properties and even boats are hopeful of an up-turn as consumers consider whether the return on such an investment might outstrip that of any annuity. But remember the old joke…how do you make a small fortune? Give an asset manager a large one to invest!
While there have been many legitimate concerns that the existing pension system has delivered too many expensive products that offer a poor return on investment, the pension liberation on April 6 should be greeted with caution. The risk of another mis-selling scandal on the scale of PPI is high.
The Pensions Advisory Service (Tpas) and the Association of British Insurers have already launched a collaborative social media campaign warning of the dangers of pension scams. Tpas has reported that its helpline has been inundated with calls from consumers who have been approached by pushy advisers contacting them out of the blue to offer creative or new investment opportunities, access to ‘loopholes’ or implausibly favourable interest rates. This is confirmed by insurance provider Phoenix Group, which claims that 45 per cent of pension savers have already been contacted by ‘advisers’ encouraging them to withdraw their lump sums.
While Tpas, Citizen’s Advice and the fledgling Pension Wise service will all offer guidance, this is not the same as financial advice. And while they may all be able to explain what the over 55s can and cannot do in order to withdraw any lump sums, they are not allowed to assess a pensioner’s assets or financial situation or suggest what investments or annuities to choose. That can only be done by a financial advisor and usually comes at a cost. This used to be in the form of a commission on the products sold, but is now based on an hourly rate and possibly a percentage of the money invested. All financial advisers have to be approved and authorised by the FCA and need to pass some form of qualification.
Clearly consumers should seek out authorised advisers, however, as this will come at a cost, many could be swayed by offers of ‘free consultations’ or ‘no up-front fees’.
While the government is keen to position “Pension Freedom Day” as the chance for hard workers to access all their savings, this liberation should be matched with information and regulation to ensure that consumers are properly protected and mis-selling scandals are avoided.
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