Financial Services Compensation Scheme chief executive Mark Neale has warned that there are ‘cautionary lessons’ for the future in the new pension freedoms world as the potential for pension scamming increases, as he defended a £20m interim levy on advisers.
In a blog which followed yesterday’s (19 March) resumption of interim levies for life and pensions intermediaries, he stated that the people being compensated now in relation to self-invested personal pensions “were not reckless or happy-go-lucky”.
“They simply wanted to make modest retirement savings go further and got very bad advice about how to achieve that,” he said.
Mr Neale explained that it is primarily the cost of compensating claimants for the losses on underlying investments which is driving the supplementary levy, bringing immediate funding consequences.
He said FSCS has seen higher volumes of claims and received legal advice which opened the way to compensating claimants not just for lost pension growth, but also for the lost value of investments.
Recent cases which have seen compensation for losses falling on advisers have involved controversial Harlequin overseas property investments, and investments in the Stirling Mortimer property investment funds.
The levy comes despite the FSCS being two years into a three-year funding cycle which saw annual levies increase in an effort to remove the need for interim levies, which add uncertainty and surprise costs to businesses.
Mr Neale emphasised that the nature of the pension freedoms, which will see many eschew traditional pensions for a wider ranged of investment options, could ultimately increase the need for them to fall back on the compensation scheme in the same way as is happening with Sipps.
The FSCS is working with providers of the Pension Wise service to ensure people understand its customer protection, he added.
“There will be many more people from April who also want to maximise the income generated by their retirement savings. It is critically important that these people receive guidance not only about the options open to them, but also about FSCS protection of the different products.
“I would much prefer that people did not need FSCS’ help because they fully understand the options and invest their money prudently.
“But, as the Sipps claims illustrate, we are not yet living in the best of all possible worlds and FSCS continues to provide a vital safety net.”
Discussing the return of the interim levy, he said the compensation scheme does “not have 20/20 vision”.
“We do not always have sight of firm failures in the year ahead when we set the levy. We cannot always predict the volume and size of claims arising from failures we do know about, and there can always be new legal or regulatory developments with implications for FSCS’ judgement.”
On Sipps specifically, Mr Neale said FSCS is fully alert to mis-selling, calling them “distressing cases” that have seen some individual’s retirement savings “swallowed up... very uncertain prospect of retrieving any value”.
peter.walker@ft.com
