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Life savings shot down in pensions ‘Wild West’
Savers are losing hundreds of thousands of pounds after being abandoned to a “Wild West” of pension rules that exposes them to unscrupulous financial advisers. An investigation by Money today reveals how advisers exploit a toxic combination of outdated laws and loopholes to lure investors into high-risk products that leave them unprotected when the bets turn bad.
The investors find they cannot claim full compensation if the products were mis-sold — while advisers who have complaints against them upheld can set up new businesses and operate as before.
The findings come as record sums are transferred out of pension schemes using freedoms introduced in 2015. Latest figures show that almost £19bn was moved out of pension schemes in the first six months of this year, after a record £34.2bn was transferred last year. In 2014, just £5.4bn was moved out. Concerns are growing that many savers may be shifting their money into high-risk or even unauthorised investments.
Money’s investigation into pension transfers reveals:
● About 4,300 pension savers, equivalent to 18 people a day, are being forced to seek help from the Financial Services Compensation Scheme (FSCS)
● More than three savers a day are receiving the maximum £50,000 payout from the FSCS
● About 1,500 investors had complaints about mis-sold pensions kicked out by the ombudsman because they did not report the problem early enough
● Claims for pension mis-selling hit a record £150m last year and were already at £108m by the end of last month.
The rules for complaints and compensation for mis-sold pensions were not changed in 2015 — posing problems for people who transfer pensions using a financial adviser. Savers can make a claim against an adviser through the Financial Ombudsman Service (FOS), which can award up to £150,000 plus interest — but only if the firm has not shut down. If the firm has closed or gone bust, any compensation claim for mis-selling gets passed to the FSCS. In 2015, the scheme had 2,840 claims. It has already had 4,300 this year, of which 865 were for the maximum sum.
Meanwhile, the financial adviser against whom the claim was awarded can just set up a new firm under a different name — a process known as phoenixing.
In one case, reported in March, two friends lost a total of more than £650,000 of their retirement pots but got just £50,000 each from the FSCS. In another case, reported the month before, a couple lost £400,000 and were again left with £50,000 each. In both cases, the advisers closed their businesses, only to reopen new ones.