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People in or approaching retirement are being warned to be on the lookout for ‘Pension Predators’, a new breed of salespeople that plan to exploit the recent pension freedoms by targeting retirees and encouraging them to place their money in unregulated investments.
At the start of this month, it became possible for pensioners to cash in all or part of their retirement fund. However, while the changes allow for greater individual flexibility, savings and ISA provider Scottish Friendly warns that it will also prompt a raft of mis-selling leading to poor investment decisions that could leave thousands of people financially desolate.
Neil Lovatt, product director at Scottish Friendly, said:
"The pension reforms have opened up a great number of opportunities for pensioners, but also opportunities for unscrupulous people to exploit their newly acquired wealth.
"Our concern is that freedom isn’t always what it’s cracked up to be; sometimes it could lead to people straying into dangerous territory. There are a number of ways, for instance, in which people might be encouraged to invest in schemes which fall outside of the protection of the Financial Conduct Authority (FCA). This might include the likes of purchasing a buy-to-let property, buying a classic car or investing in a start-up business.
“Because there are no regulations prescribing the way in which these investments are sold, it leaves people at risk of buying into an overzealous salesperson promising the world in order to secure the sale. We’ve seen this happen before, for instance pension transfer mis-selling was a shameful blight on the industry and led to the introduction of many consumer protections.
"These protections meant that the FCA ensured people were treated fairly and the protection of the Financial Ombudsman offered a form of redress if an investment was mis-sold. However now it’s very possible that people might unsuspectedly stray outside of the comfort and protection of the regulator and become a victim of these new sales predators."
Scottish Friendly is also concerned that if people do fall victim to these Pension Predators, there will be no Government support to help them, leaving them potentially financially desolate.
"The Government has applied the ‘Deprivation of Capital’ rule to pensions. This means that if you use your retirement fund in a way in which it is deemed to be reckless, lose all of your money and end up needing to rely on the state for support, you will only be allowed to do so if the Department of Work and Pensions agrees with your financial decisions.
"In effect, the Government is reserving the right to decide after the event whether or not an individual used that money wisely. It is unclear how the DWP will identify what will and will not be accepted as depriving yourself of capital and it gives no guidance as to how people will be allowed to spend their pensions.
"So for example, a badly made decision to invest in an unregulated scheme could be considered a reckless endeavour, leaving pensioners without any state benefits to support them.
"People need to be guarded about how they choose to invest or spend their money. It is important pensioners don’t rush into a decision and never leave themselves at risk of walking away with nothing. If in doubt, people should seek advice from an authorised independent financial adviser."
Scottish Friendly is not responsible for the accuracy of the information displayed on externally linked third party websites. The Scottish Friendly Group of Companies consists of the following companies: Scottish Friendly Assurance Society Limited – Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Member of AFM, Member of ABI: Life, Savings and Investments. Scottish Friendly Asset Managers Limited – Authorised and regulated by the Financial Conduct Authority. Member of The Investment Association. Registered in Scotland No 187215: OEIC Managers, ISA Managers. Scottish Friendly Insurance Services Limited – Authorised and regulated by the Financial Conduct Authority. Registered in Scotland No 113007. SFIS (Nominees) Limited - Registered in Scotland No 397351. Head office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ.