Up to 2m people could be the target of unregulated firms seeking to take advantage of new pension freedoms to encourage people to transfer their savings, according to studies gathered together for a documentary on the risks facing savers from April.
A Channel 4 Dispatches documentary aired last night (12 January) found that in total over-55s will have an estimated £100bn available to them.
Almost half of those over 55 intend to take some or all of their money out of their pensions from April meaning around 2m people could be set to take advantage of the new reforms, Scottish Widows research quoted in the programme revealed.
However, separate research from Phoenix Group conducted for the programme found around the same proportion of pension holders have been approached about a review of their pension or to release some of it as cash.
An undercover reporter posing as a pension saver was offered various investment opportunities including a parking bay in Dubai and forestry in central America.
Danny Cox, chartered financial planner at Hargreaves Lansdown, commented: “I think you’d be absolutely mad to invest your pension money in this type of product.”
Greg Heath, IFA at Derbyshire Booth Financial Management, said that such liberation operations are destroying pension funds and lives.
He commented: “We’ve had people, who have been distraught they’ve been in tears. They’ve been in my office in tears because they’ve effectively lost thousands of pounds and they don’t know how.”
The data follow on from comments from senior industry figures to FTAdviser last week which warned of a potential ‘paradise’ for pension scammers from April as a result of the reforms.
Adrian Boulding, pensions strategy director at Legal and General, said that while the Pension Ombudsman has recently and repeatedly held the statutory right to transfer only applies to legitimate schemes, from April transfers can be made to bank accounts for onward investment.
He said: “This is a problem we’re getting worried about, because we haven’t had any answers yet.
“The guidance guarantee should help and we’ll send material to customers to try and make them stop and think, but the reality is there’s nothing stopping people withdrawing money and passing it on to ‘whizzbang’ investment schemes.”
Elsewhere, figures quoted in the documentary from Hymans Robertson suggested that £6bn worth of additional monies will come out of private pension plans in the first four months following the introduction of these new rules - around three times more than the government’s official estimates.
Alan Higham, retirement director at Fidelity Worldwide Investments, told presenter Michael Buerk that about 20 per cent of the callers they have had are from people who have made very quick plans to spend money on home improvements, a new car, or to go on holiday.
The programme also focused attention to those providers still pushing retirees into their own brand annuities, criticising a wake-up pack from an un-named insurer that only stated on page 13 of 60 that if the consumer took no action they would be automatically defaulted into an annuity.