Regulation  

FCA warns against firms promoting ‘better pension returns’

Consumers are at risk of firms who are using the new freedoms to get people to transfer their pensions to achieve “better returns”, with the Financial Conduct Authority warning many of the firms involved are unauthorised and “operating illegally”.

These firms typically seek to attract consumers by offering a ‘free pension review’, which suggests to consumers they will get free professional advice. In reality, professional advice on pensions is not free, the regulator said in its retirement income study published today (11 December).

The outcomes of these ‘reviews’ tend to range from very poor advice to fraud, typically involving consumers being encouraged to move their existing pension savings into high risk unregulated investments, often based overseas.

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Even where the investments are not outright scams, they tend to be speculative, illiquid, niche schemes that are unsuitable for the investment of pension savings.

To address these issues, the watchdog is working with the Pensions Regulator and others on a multi-agency initiative looking at aspects of pension liberation and scams.

The FCA said: “We will be alert to scams in the new pensions and retirement income market, building on the focus we already have on pensions liberation and associated investment scams.

“In addition to these initiatives the FCA has issued consumer alerts, adviser alerts and industry guidance.”

In January 2013, the regulator issued an adviser alert outlining our concerns that consumers were being encouraged to transfer their pension savings from work and personal pension schemes into self-invested personal pensions, with a view to investing in unregulated products or high risk investments.

The FCA had identified business models whereby advisers were restricting their advice to the suitability of the Sipp wrapper, which would hold the underlying investment rather than advising on the suitability of the underlying investment itself.

Furthermore, these business models tended to concentrate specifically on the switching of mainstream regulated funds into Sipps with underlying unregulated high risk assets, whilst giving little or no consideration to other possible pension planning arrangements.

In April of this year, the FCA issued a further alert to advisers outlining its findings and stating that firms who did not provide advice on the underlying investment or on the transfer to a Sipp or a small self-administered scheme fell short of their obligations under the FCA’s Principles for Business and Conduct of Business Rules.

At the same time, the regulator issued an alert to consumers warning of the risks of accepting ‘free’ pension reviews and moving their pension savings into unregulated investments.

In October, the FCA launched a national consumer awareness campaign ‘ScamSmart’ informing people about investment scams, the types of tactics used by fraudsters and tips on how to avoid scams.

The paper said: “We consider these issues present potential risks to consumers who will be faced with greater choices in how they hold their pensions and in their ability to withdraw their pension savings from 1 April 2015.”

donia.o’loughlin@ft.com