The recent spike in savers rushing to transfer out from a defined benefit (DB) scheme resembles the personal pensions mis-selling scandal in the 1990s, several experts have warned.
At FTAdviser’s Unpackaging Pensions event last week, Keith Richards, chief executive of Personal Finance Society (PFS), said the government has repeated the mistakes of the 1980s with pension freedoms, which were introduced in 2015.
At the time of the pension freedoms announcement, George Osborne, then chancellor, said that pensioners would have “complete freedom to drawdown as much or as little of their pension pot as they want, anytime they want”.
“No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity,” he said, at the time.
Since then, defined benefit pension transfers have been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes in order to access them.
Mr Richards said: “We are already seeing a significant number of people going in to drawdown with no advice, not knowing what they are doing.”
He noted that professionals have raised flags about their concerns to the regulator.
He added: “It is worrying that in the future people might try to pin this as a mis-selling of advice.”
He said the latest figures from the Financial Conduct Authority (FCA) - which show that advice in more than half of the DB transfers where the recommendation was to move the retirement pot was unsuitable or unclear - was not a reason to worry about the quality of pension advice being given.
However according to Malcolm Mclean, senior consultant at Barnet Waddingham, the government's decision to press ahead with pension freedoms is very similar to the one taken by then prime minister Margaret Thatcher's government when it encouraged people to take out personal pensions back in the 1980s.
Facing the looming problem of an ageing population, Mrs Thatcher's government launched a campaign that actually encouraged employees to leave often generous occupational pensions and transfer to personal pensions with the intention of making the workforce more mobile.
This led in part to the pensions mis-selling scandal that was to hit many years later, in which many financial advisers were embroiled.
The pension mis-selling scandal occurred in the late 1980s and early 1990s, when as many as two million people were wrongly advised to opt out of occupational schemes and take out personal pensions.
Mr Mclean said: “Going forward we need to accept that we need to learn from the past.
“We have not learned about simplifying pensions or the language of pensions.”
James Dingwall, founder and chief executive of Thistle Initiatives, said that the “vast majority of [advice] firms are doing the right thing”.
Proof of that is that only four firms have stopped advising on DB transfers as a result of the regulator’s assessments in this area, Mr Dingwall said.