Pension freedoms leave savers vulnerable to scams
In a report looking at the effect the freedoms have had since their introduction in April, the Work and Pensions Committee warns that giving people easier access to what might be their largest saving pot increases the potential for scamming.
It adds that although the government and regulating bodies have focused on consumer awareness and reducing the risk of scams, more could be done - including more anti-scam publicity and stricter reporting requirements for pension providers.
The free guidance service Pension Wise also comes under fire, with the committee arguing that very few people have actually used the service - indeed, the committee estimates that only one in 10 people accessing their pots had a Pension Wise session.
Accountability also seems to be an issue, with no research programme in place to track what the outcomes are for customers after using Pension Wise, although 90 per cent of people who used the Pension Wise service say they have been satisfied with it.
'The government's reticence on publishing statistics on the effects of its pension freedom policy, a full six months after the reforms, is unacceptable,' says the report, adding that better collection and reporting of information - especially regarding Pension Wise - should 'provide some assurance that another mis-selling scandal is not on the horizon'.
Malcolm McLean, senior consultant at pensions consultancy Barnett Waddingham, says extra steps to protect consumers from fraud can only be a good thing.
'The level of this particularly pernicious and, for the victim, devastating type of fraud is clearly on the increase since the freedoms arrived, and must be curtailed if the credibility of the new arrangements is to be maintained.
'Perhaps the police and prosecuting authorities can be persuaded to adopt a zero tolerance approach to fraudsters from now on.'
Previous research suggests people are being generally cautious with their new-found freedom, rather than splurging their pension savings on frivolities.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.