Pensions campaign group calls for government task force
AN international campaign group for people targeted by pension liberation schemes has called for a government task force to tackle the fallout from George Osborne’s pensions revolution.
Pension Life says it represents “victims of numerous dubious schemes with total losses in excess of £2 billion”.
It wants a task force with a joined-up approach that would involve HM Revenue & Customs, the Pensions Regulator (tPR) and the Financial Conduct Authority (FCA).
City of London Police figures show that in the 12 months to February 2016, £13.2 million was lost in pensions liberation schemes – an increase of 26 per cent on the previous year. The average amount lost was just over £20,000.
The schemes target people under-55, who are not allowed to access any pension savings unless in exceptional circumstances such as ill-health, and who otherwise face losing up to 70 per cent of their pot as a tax penalty.
Consumer group Which? said: “We found that companies offering early pension release for those under-55 are clearly advertising their services online. These sites offer early access to pension savings, potentially exploiting consumer confusion with the new pension freedoms, and don’t explain the huge losses at stake, often charging exorbitant fees.
“Many of these sites, which could potentially be scams, also appear prominently when searching online for phrases such as ‘cashing in your pension’ and could be contributing to an increase in pensions liberation scams. The Financial Conduct Authority has issued a clear warning to savers about opting for early pension release, but adverts for early pension release often downplay the risks.”
Pension Life’s chairman Angela Brooks said: “The government must insist HMRC stops registering pension schemes without doing the proper due diligence. It must also stipulate that tPR ceases the registration of occupational schemes without due diligence, together with the FCA strengthening regulations.”
She says growing numbers of under-55s are falling victim to sales approaches promising “guaranteed returns”, typically of eight to nine per cent for two to five years.
They will usually conjure up spectacular growth opportunities in esoteric property developments.
Ms Brooks said: “However, the problem with property is that it is illiquid and not necessarily easy to sell. A pension needs to be liquid so that if a member wants to transfer out, reaches the age of 55 or even retirement age or dies, the fund has to be ready to transfer out quickly.”
Pension Life also warns of unregulated advisers and funds. Ms Brooks said: “If there is no regulation, there is no protection. Don’t be fooled into being assured that a firm is regulated when it isn’t.
“Phrases such as Company X works in conjunction with a fully regulated and authorised company’ usually means Company X is not regulated.
“If an unregulated fund goes bust, then the investors have lost everything and there is no protection.”
Firms which sell schemes will also hide in the small print the claim that ‘no advice was given’ – a trick also used by banks which sold complex derivativelinked loans to small businesses. It means that the firm peddling a scheme can claim that it was merely presented to someone who then made up their own mind whether it was suitable for them.
Ms Brooks added: “Lastly, it is crucial to determine an investor’s risk profile.
Before any major financial transaction, there should always be a fact find, which is a Q&A to determine what this is.
“Any investment recommendations should respect the individual’s risk appetite. Most ordinary people are ‘low-risk’.”
Reputable companies may classify unregulated propertylinked schemes as “low risk”, as The Herald highlighted earlier this year in the case of a Paisley-based investor whose complaint to the Financial Ombudsman Service was upheld.
Graham Brown, 59, transferred his benefits worth £160,000 from the Strathclyde Pension Fund into a self-invested personal pension (Sipp) in 2013. He used Kent-based Portal Financial, a sizeable regulated firm which advertises widely and offers pension release and other services to people over 55.
The Financial Ombudsman Service ordered Portal to compensate Mr Brown after finding that it put 85per cent of his cash into “complex and sophisticated investments which presented a significant risk to Mr B’s pension fund”.
Portal insisted the property-related schemes had in fact been low risk as they were based on long-term maturation for an investor who had stated he did not require access to the money.
In August last year, Portal Financial itself published a survey suggesting 51 per cent of over-55s in the Northern part of the UK region had been contacted by a “pension release” company they believed to be fraudulent. But it said 42 per cent were not confident they could tell the difference between a scam and a legitimate offer from a regulated company.
‘‘ Investment recommendations should respect the individual’s risk appetite. Most ordinary people are ‘low-risk’