Pensions mis-selling scandal
An erupting pensions mis-selling scandal has led to MP’s calling for urgent action after finding that some financial advisers exploited thousands of savers for personal gain.
A report from members of the Work and Pensions Select Committee said “dubious” advisers and “parasitical” introducers, had “shamelessly bamboozled” 2,600 British Steel Pension Scheme (BSPS) members. Savers moved £1.1bn of pensions out of the company’s “gold-plated” defined-benefit scheme into riskier funds with high management fees, the committee found.
The particular circumstances surrounding the BSPS “created perfect conditions for vultures to take advantage,” MPs said.
However, similar bad advice on defined-benefit pension transfers may have affected tens of thousands of people’s retirement funds in schemes across the UK. The true scale of the scandal is not yet known but estimates suggest billions of pounds of savings could be affected.
Research by the Financial Conduct Authority found that only half of advice on defined-benefit transfers meets required standards. The report said that more than 100,000 people a year are opting to transfer their money from defined-benefit schemes on the back of this advice. Another estimate from financial data firm, Mintel, puts the figure at around 250,000 transfers in 2017, worth around £15bn.
MPs said a defined-benefit transfer is not usually in someone’s interests because it means giving up generous, indexed and stable benefits in favour of funds often characterised by high investment risk, high management charges and punitive exit fees ranging from 5 per cent to 10 per cent. As a result of this, anyone transferring more than £30,000 is required to take financial advice.
Advisers to BSPS scheme members typically charged fees of around 2% of the transfer value and many savers were also duped into signing up to ongoing adviser charges, without receiving any real on-going service.
The average transfer value for members of the BSPS scheme was £400,000, with 20 people moving funds of more than £1m. Some advisers charged “contingent fees”, offering free advice and only taking a fee if a client opted to transfer their pension.
Contingent fees actively incentivise advisers to recommend a transfer, creating a “glaring misalignment of interest between adviser and their client. It would be remarkable if it didn’t lead to at least some mis-selling,” Tom McPhail, head of policy at Hargreaves Lansdown said.
Redwood Financial View
As with any financial planning there are companies that will provide strong, sound and appropriate advice that always puts their Clients needs first and those that will provide advice that meets their own needs first. Following the reports publication in February 2018, a plethora of so called Mis-selling claims companies have started to appear, advertising on the radio, online and in the local press.
It’s important to remember that there are many and varied reasons why a legitimate advisor has recommended a Client opt-out of an existing scheme, maybe because of the need for income flexibility or improved death benefits. By no means can it be said that all such activities are ill-advised.
Always do your research before selecting an advisor to help you make the right choice for you. Review them online and see what existing Clients think, or source them through specialist websites or the way the majority of our Clients join us: via recommendation from a friend, family member of colleague they trust.
The same can be said of selecting a potential mis-selling claims agent if you are concerned about the advice you have received from financial adviser. Make sure you find the one that will put you and your concerns first, not their own self-interest.
If you are worried about pension advice you have had in the past, then please let us know and we will be happy to help.