Pensions could become the next mis-selling scandal, warn MPs

Stronger support is needed for consumers taking up new pension freedoms to help them avoid fraudsters or making a financial mistake

Pension scammers are targeting everyone (Getty Images)

There’s another major financial mis-selling scandal looming, this time centred around the pension freedoms launched in April, an influential committee of MPs warned today.

“These reforms have been in operation for six months now: long enough for the scammers to get going, working on defrauding people out of their life savings,” said Frank Field, chair of the Commons’ Work and Pensions Committee.

He said the government must urgently provide data on how the reforms are working and close gaps that have already become apparent.

The pensions freedoms gave people aged 55 and over the right to take their retirement savings as cash. But fears are rife that many attracted by the opportunity to get at the money now will not consider the long-term implications for their later years or be aware of the tax charge as only a quarter of their 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 an estimated £14m in a sophisticated sting. Those behind the suspected scam cold-called pension scheme members and offered cash incentives to have their savings transferred out of the scheme into potentially better investments.

“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,” Mr Field said.

Malcolm Mclean, senior consultant at pension actuaries Barnett Waddingham said it is time to adopt “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 45-minute guidance session in person or over the telephone, as well as offering information online -to help people get guidance on the crucial financial decision to cash-in their pension pot early.

However, the Committee said “it is apparent that take-up of Pension Wise has been lower than many anticipated”. It wants pension firms to provide “stronger signposting” to the service and for Pension Wise to give more personalised guidance.

Richard Graham, Chair of the All-Party Pensions Group, said: “We question whether enough is being done by both government and contractors to publicise Pension Wise’s availability.”

It has also called for the government to set a firm timetable for introducing an online “pensions dashboard”, to allow people to see all their pensions savings in one place.

Huw Evans, director general of the Association of British Insurers said the pensions industry is keen to support a pensions dashboard, adding, “We agree with the Committee that savers need much greater access to information”.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, echoed the Committee’s criticism about the lack of data about how the reforms are working. “The tracking by public bodies of investor behaviour, decision making and outcomes has so far been inadequate,” he said.

However he believes that “before throwing more resources at the free guidance services, policymakers should explore the development of personalised guidance by the financial services industry.”