Pension reforms ‘run risk of new mis-selling scandal’

The Government has set up a Pensions Wise service, which offers a 45-minute guidance session in person or over the telephone

Another financial mis-selling scandal is looming, this time over the pension freedoms launched in April, an influential committee of MPs warns today.

“These reforms have been in operation long enough for the scammers to get going, working on defrauding people out of their life savings,” said Frank Field, chairman of the Commons Work and Pensions Committee. He said the Government must provide data on how the reforms are working and close gaps that have become apparent.

People aged 55 and over have the right to take their retirement savings as cash. But fears are rife that many attracted by the chance to get at the money now will not consider the implications for their later years, or be aware of the tax charge, as only a quarter of a pension pot can be taken tax-free.

“Good quality, co-ordinated and accessible guidance and advice will be the best tools to ensure people make the best, informed decisions about their retirement savings, and protect them from scammers,” said Mr Field.

In one case reported last week by the Pensions Regulator, hundreds of people lost out when pension scheme members were cold-called and offered cash incentives to have their savings transferred out of the scheme into potentially better investments.

Mr Field said: “We have seen all too clearly, too many times, what happens when financial information is not properly provided and regulated. We literally cannot afford another financial mis-selling scandal.”

Malcolm McLean, senior consultant at the pension actuaries Barnett Waddingham, called for “a zero tolerance approach to the fraudster”, pointing out: “The level of this particularly pernicious and, for the victim, devastating type of fraud is clearly on the increase since the freedoms arrived and must be curtailed.”

The Government has set up a Pensions Wise service, which offers a 45-minute guidance session in person or over the telephone, as well as offering information online on cashing in a pension pot early. However, the committee said take-up of Pension Wise has been “lower than many anticipated”. It wants pension firms to provide “stronger signposting” to the service.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “The tracking by public bodies of investor behaviour, decision-making and outcomes has so far been inadequate.”

This particularly pernicious fraud is clearly on the increase