Money News: Start-up investors not given full facts about risks, says FSA

Nearly a dozen websites that failed to explain to potential investors the high risks associated with venture capital trusts (VCTs) have been forced to change their marketing by the City regulator.

Flaws in the promotion of these specialist investment vehicles included over-emphasis on tax breaks, lack of information on charges and inadequate explanation of how VCTs work, the Financial Services Authority (FSA) said.

VCTs plough cash into fledgling and small companies as diverse as wind farms, food manufacturers and football clubs. At the "safer" end of the market, these firms will be listed on the Alternative Investment Market, the junior version of the London Stock Exchange. But others will be start-ups - in effect, unknown quantities - and this is where the risk factor rises. If a company's value falls, investors could be unable to sell their stake.

To restore interest in VCTs after flagging sales in 2002 and 2003, the Government introduced a new income tax break. It worked, and more than £500m was raised in the 2004-05 tax year, five times the total for the previous 12 months.

In March, the FSA first expressed fears that ordinary investors might rush in without proper warnings. Now it has targeted 11 websites belonging to brokers, wealth managers and intermediaries that failed to stick to its rules.

"Most of the web-based [VCT] promotions we reviewed didn't explain all the main risks prominently - this needs to be fixed quickly," said Vernon Everitt, an FSA director.

If companies fail to comply, the regulator will fine and name them.

Contracting out: Help at hand in pension dilemma

Insurers are to send out millions of factsheets to help consumers decide whether to contract "in" or "out" of the state second pension (S2P).

S2P (formerly Serps) is based on your earnings and intended to shore up your basic state pension. People with personal pensions have a choice each year: let the Government keep their S2P payments and work out their entitlement when they retire, or "contract out" of the scheme instead. In the latter case, they are given a rebate to invest as part of their personal pension pot.

Deciding whether to remain in the scheme has become a minefield for workers, however. The new factsheet will be the latest version of an advisory document, drawn up by the Association of British Insurers (ABI) and Association of Independent Financial Advisers, last revised in October 2004. It aims to help workers make a more informed decision.

Both the FSA and the consumer body Which? have warned that, where contracting out was once deemed a sound move (when stock markets were on the up and rebates generous), the climate today is very different. Both suggest that workers who contracted out have probably lost out.

Although the new ABI consumer factsheet sets out the pros and cons of staying "in" or "out", it doesn't propose a set course of action. If they are still confused, savers should contact their pension provider or an independent financial adviser (IFA).

However, recognising the potential problems in coming to a decision, IFAs can be reluctant to give clients a definite "yes" or "no".

As a general rule, advisers recommend staying "in" if you are 50 or over.

Final salary schemes: Wait continues for staff of failed firms

A delay in deciding whether the Government misled workers over the safety of their final salary pension schemes has left more than 80,000 people in the dark for another five months about possible compensation.

Ann Abraham, the Parliamentary Ombudsman, has written to the workers concerned and MPs. She said the delay was due to the complexity of the issues involved, and to give the pensions industry and government officials an opportunity to react to her conclusions.

However, opposition MPs and industry sources suggest pressure was put on the Ombudsman to delay publication of the report after its findings proved unwelcome to the Government.

Ms Abraham's inquiry was launched last year in response to complaints that the Government gave incorrect advice via leaflets and websites to workers, stating their retirement income was guaranteed if they were a member of a final-salary scheme.

However, tens of thousands of people have since lost a large part of their retirement savings when their companies collapsed with underfunded pension schemes.

Premium-rate fraud: Clampdown on dial-up switchers

Internet fraudsters who use software to secretly switch online users' web connection to expensive premium telephone rates are facing a new crackdown by the telecoms regulator, Ofcom.

The fraudsters, who can usually work only on old-style "dial-up" internet connections, strike when you try to close down a pop-up box on your computer screen.

By clicking on the icon, you unwittingly switch your connection to a premium rate number costing more than £1 a minute.

Criminals have in the past mainly used 09 numbers for this type of fraud. But after a clampdown by the premium-rate watchdog, Icstis, earlier this year, they have begun to use 087 and 070 numbers instead.

Now Ofcom proposes to bring all numbers within its jurisdiction in order to stop the fraud.