I remember it well; workers were encouraged to transfer pension benefits accumulated under an occupational scheme into a new-style personal pension. They were promised the financial earth, but in reality given a pittance in return.
Prudential was one of the guiltiest of those involved in the mis-selling scandal, although it took a while for the firm to admit it. In 1994, chief executive Mick Newmarch gave a “total reassurance” that Prudential was not guilty of mis-selling. Four years later, with more than £1bn put aside to cover the expected costs of its mis-selling, new Pru boss Sir Peter Davis came clean.
I fear that a similar scandal is beginning to bubble to the surfaceBefore a probing Treasury select committee, he apologised for the “suffering and loss” people had experienced as a result of the pushy financial advice given by Pru’s army of salesmen, while taking a side-swipe at Margaret Thatcher’s government for its backing of the new personal pension revolution.
Dejà vu
Today I fear a similar scandal is beginning to bubble to the surface. Prudential is nowhere near it, but some of this country’s army of financial advisers are up to their neck in it. Shame on you.
The similarities with the 1980s are scary. Like the birth of personal pension mis-selling in the 1980s, government rule changes are the trigger for the worrying bubbles; this time around, George Osborne’s pension freedom rules, which kicked into force in April 2015.
In theory, pension freedom is a good thing, giving people greater control over how they use their retirement funds as they near retirement, enabling them to avoid the yoke of being trapped in a poor annuity deal for ever more.
But it is a freedom that some advisers, like the Pru salesmen in the 1980s, are now exploiting for their own financial gain. They are encouraging workers to transfer out of perfectly good occupational pension arrangements, parking their money in a Self-Invested Personal Pension (Sipp). Sometimes the transfers make perfectly good sense, sometimes they do not.
Reports have recently emerged of steelworkers at the Tata plant in Port Talbot being targeted by unscrupulous pension transfer advisers. They have attracted special attention, because members of the British Steel Pension Scheme must soon decide whether they should move their pension benefits to the Pension Protection Fund or a new retirement scheme backed by Tata.
Both choices will result in lower pension benefits for steelworkers, hence the decision of some IFAs (and fraudsters) to target them and persuade them to move their benefits elsewhere.
Indefensible rules
Alastair Rush of Echelon Wealthcare is a financial adviser whom I trust implicitly. He has done some super work in campaigning for former armed forces personnel deprived of their pensions because of indefensible rules.
He heralds from Port Talbot and recently drove down to the town to find out more about what has happening to the “boys I went to school with”.
He was shocked – and it takes a lot for Mr Rush, an ex-military man who did service in Bosnia, to be ruffled.
Mr Rush told me he counselled – not advised – nearly 40 steelworkers about what they should be doing with their pension. A transfer to a Sipp, he said, was right for no more than five, even though nearly all of them had been urged to do so by other advisers. He described what was going on as a “feeding frenzy” and “truly awful”.
“These men are steelworkers,” he said. “They are lambs to the slaughter. What I uncovered has been staggering; truly awful. I have shouted at the Financial Conduct Authority for the past two weeks and the response has been indifferent.”
There are good advisers out there, like Mr Rush, who are acting in the best interests of steelworkers. Some others also seems to be going about their work diligently, offering sound guidance.
And we must not forget that the Tata situation is atypical when it comes to pension transfers (because of the threat of lower pension benefits).
Yet the fact remains that pension transfers should be the exception not the norm. This is a point that Darren Cooke of Red Circle Financial Planning drilled home to me in recent days.
Like Mr Rush, Mr Cooke is an IFA I hugely respect. It was he who led the charge for banning pension cold-calling, something that has, scandalously, yet to be put into place.
His view is that transferring a defined benefit pension should be the exception not the rule; suitable only for those who have secure retirement income from other sources or who maybe have a short life expectancy.
“The regulator states that it will be in the interests of most people to retain their current defined benefit pension scheme rather than transfer,” he said. “It does not say that to be mean, but because it is generally the right advice.”
We must nip this scandal in the bud.
Jeff Prestridge is personal finance editor of the Mail on Sunday
