BBC weatherman Michael Fish famously failed to forecast the hurricane in October 1987, which overnight destroyed 15m trees and turned the town of Sevenoaks into just one oak. In reality, had he got it right, I suspect many viewers would have ignored him – forecasting bad news is never popular and often falls on deaf ears.
I therefore take no pleasure in being proved right about the inherent dangers of pension freedoms, which I warned would inevitably lead to consumer detriment. Introduced more as a political expedient than a carefully thought through policy, the pension freedoms chickens are now coming home to roost, with serious financial consequences for advisers and consumers.
Somewhat belatedly, we are now seeing a flurry of regulatory activity around the dangers of transfers from defined benefit schemes. In addition, it is clear that many thousands of consumers are transferring savings from secure, well-managed and tax-efficient defined contribution schemes and personal pensions into inefficient bank accounts or similar, paying low or even no interest, while often creating an unforeseen tax bill in the process.
We are also starting to see the results of the actions of the minority of advisers whose irresponsible, reckless and – in some cases – criminal behaviour has facilitated wholly inappropriate pension transfers.
It is no coincidence that the FCA is issuing warnings about how to deal with pension freedoms at the same time as numerous clients are being referred to the FSCS.
The ultimate cost to the FSCS of this reckless behaviour is not yet known. However, we do know that until the funding of the FSCS has been reformed, the cost will fall wholly unfairly on the adviser community.
Once again it will be the responsible, compliant and well-governed advice firms that have to pick up the bill for the actions of a small minority of careless, reckless or criminal advisers. My forecast is not about us facing a hurricane, but rather that as a result of pension freedom we will see an avalanche of claims on the FSCS.
I believe most of these problems could have been avoided if the government had consulted properly before introducing pension freedoms. If it had, we could have all enjoyed pension freedoms that delivered better outcomes for consumers, advisers, regulators and the government.
Ken Davy is chairman of SimplyBiz Group