Protect yourself against rising mis-selling in retirement finance

The Financial Services Compensation Scheme (FSCS) is steeling itself for a ‘notable’ jump in payouts next year, it has revealed to MSE.  These are claims against authorised advisers who’ve taken poor care or given bad advice and then gone bust or haven't enough funds to compensate customers, forcing clients to seek help from the FSCS. 

The FSCS won't publicly predict how much it is expecting to shell out this year but the bill for mis-sold pension transfers for the 12 months to April 2018 was £155m. With April to 23 August 2018 at £108m, in figures released to MSE, next year’s figures looks set to top last year's.

Many of these customers were lured by the promise of exceptional returns, putting funds from defined benefit pensions into high risk or illiquid products such as carbon trading, storage pods, forestry or overseas property.

Losses have averaged £27,500 in FSCS compensation but many are considerably higher. In the 12 months to 23 August, the FSCS revealed to MSE, it had paid its maximum of £50,000 in 1,350 cases. Chief executive Mark Neale told MSE: ‘The current £50,000 ceiling for bad pensions and investment advice is low when people stand to lose their entire pension pot.’ The cap will be hiked considerably to £85,000 on 1 April.

It’s hugely important to get the best retirement income for your individual needs.  Don’t be put off by the scams from sorting your affairs out but do PROTECT yourself. It’s a tricky area.  Don’t let it become a nightmare. Check out our pointers below and for more details go to Annuity is no longer you're only option to taking your pension:  https://www.moneysavingexpert.com/savings/annuity-guide/

And

https://www.moneysavingexpert.com/savings/pension-liberation/

So what are the regulators doing about this?

·        This Thursday CHECK the Financial Conduct Authority, which regulates financial advisors, will introduce guidelines on how pension transfers are illustrated on Thursday.  Further guidelines on a different area are due in April.

·        FSCS compensation will be stepped up £35,000 from 1^st April 2019 to £85,000 for pensions and investments.  But this will only apply to claims originating from then on.  DOUBLE CHECK If you think you’ve been mis-sold and your adviser was part of the FSCS scheme but is unable to compensate, don’t wait to file your complaint with the FSCS.

·        Potentially, the incoming higher limit could be reviewed again depending on incoming claims, Neale told MSE. 

·        The FSCS wants to get the message out that it can provide protection on pensions advice.  Its presence in pensions and investments isn’t as obvious to the public as it is in banking, it feels.  Even though it sees itself as the last resort, its research has shown people choose more wisely and are less likely to need it when they’re made aware early on that things can go wrong.  It’s down to the advisers to flag up they’re part of the FSCS scheme.  

·        The FSCS has been developing technology to speed up claims handling and keep claimants more up to date.  Its aim is to resolve pension related claims within six months.

·        The FCA has issued guidelines on protecting yourself from scammers.  

·        The FSCS keeps a list of bad advisors and good ones and updates it.  Link

So what’s behind this rise in mis-selling?

Fingers are pointing at a minority of unscrupulous people and sloppy advisers who have made more money for themselves than their clients after pensions freedoms were brought in 2015. 

Insiders have liked the freedom to a double edged sword.  In the hands of this minority, it has wreaked a lot of damage to individuals and their family and stained the system.

Since 2015, people no longer had to use their pension to buy an annuity giving regular income but could transfer their funds into all sorts of places such as a Self Invested Pension Plan - a pension plan that enables the holder to choose and manage the investments made.

The FCA is expecting to publish figures later this year to show that almost half the advice given was unsuitable.  SEE WHAT ELSE ROSHINI SENT. 

So how could authorised advisers mis-sell?

Combine a complex area with sales incentives and sloppy attitude along with customers adamant to sign up for juicy looking deals and that’s how authorised and regulated advisers mis-sold on an industrial scale. 

In the financial year 2017/2018, the FSCS paid £112m to people who’d put money from occupational pensions into Self Invested Personal Pensions based on ‘risky or illiquid investments’ and £43m for claims against Independent Financial Advisers ‘negligent advice to transfer pensions out of defined benefit schemes into unsuitable assets’.

·        Advisers didn’t check out the underlying investment in a SIPP.

·        They failed to advise the customer even when they knew the customer didn’t really understand what they were getting into.

·        They didn’t bother checking that other people who’d advised the customer were properly qualified to advise.

·        They didn’t have the proper authority to make the investment. 

HOW MANY HAVE BEEN BANNED? PUT IN FIGURES

Quick pointers to protect yourself from pitfalls

1.    Take care for yourself.  Beware of falling for unregulated advisers. These could be firms or individuals.  Scammers have targeted respected or popular figures to recommend dodgy products to family, friends and co-workers.  These so-called introducers may be well intentioned but they’ve been duped. Both types of so-called introducers encourage others to go via a financial adviser who may not be as diligent as they should be.  Don’t jump on a bandwagon.  Good advice is based on carefully taking into account all your individual circumstances. Always double check all completed paperwork promptly yourself.

2.    Cold calls. Don't get suckered in.  Don’t give out personal info.  Report ‘em to Action Fraud.

3.    Start with proper advice.  Beware of exotic, too-good-to-be-true schemes. Some of the scams have had a nasty way of delivering.  Investors in schemes such as storage units, overseas property and renewable energy bonds, have seen their money float far away without trace - let alone carbon footprints. And don't think you can get the best of both worlds - a high risk scheme that might just pay out, with back-up protection from the regulators if it doesn't work out. People have got hooked on dodgy schemes, gone to FCA authorised advisers and tried to buy these products through them.  If you knowingly take on risk, there's no protection.

4.    Do quality preparation.  Get free, independent, impartial advice from the Pensions Advisory Service.  If you're over 50 with a defined contribution pension (often called a final salary scheme), you can make an appointment with the Government's Pension Wise service. LINKS 

5.    Do your sums and be realistic. Think carefully about how much you will income you will need throughout the whole of your retirement. Needs can increase as you go from the early years of retirement to the later ones.

6.    What should FCA authorised advisers do? They should find out your circumstances, your income aims and your risk appetite and advise accordingly.  It’s all about you and the most appropriate advice.  That's tricky if you go with a closed mind. Too many people (and as a consequence, their families) have been duped by dodgy investments.  Be honest.  If you knowingly take on risk, there's no protection. But, if you're fixated with an exotic, risky deal, the adviser should point out if it's an unregulated product and potentially high risk.

7.    So who should I choose? It's important to get this right and it's a complex area. If you deal with an unauthorised firm, you won't be covered by the ombudsman or the FSCS.  Check they’re NOT on the FCA's warning list of unauthorised firms and individuals. You’ve more protection if you use FCA authorised advisers and they have to have specialist training, particularly to give pensions related advice. Check out the FCA Register to see to what extent your adviser’s services are authorised and regulated by the FCA.  Check they're really on the FCA's list and not a clone.   If in doubt, you can speak to the FCA's consumer contact centre. 

8.    Get legal help. The FSCS recommends also involving a lawyer before making financial decisions, especially large and/or risky ones.

9.    Listen out for if you’ve got FSCS backup. You’re considering a product, it’s down to the FCA regulated advisor to explain whether FSCS cover applies. Different firms have different permissions. The FSCS web site gives general advice about what’s covered but it’s down to advisers to explain what they are and aren’t allowed to do. https://www.fscs.org.uk/what-we-cover/

10. Not happy about your purchase? Given that pension or retirement related products are likely to be long term, it can take time to tell whether you’ve been mis-sold.  If you suspect you’ve been treated unfairly or improperly, write to the company that sold you the product.  An FCA regulated adviser must write back.  If you’re still unhappy, take it up with the Financial Ombudsman Service. If you’re right, the FOS can get you up to £150,000 back (provided the company is still in rude health).

11. What if the company can’t pay or won’t pay?  If the company has gone bust or looks like it can afford to pay you, https://www.fscs.org.uk/what-we-cover/search-for-companies-in-default/ go to the FSCS.  They will handle your entire claim and it’s for free – thanks to an industry levy. However, right now, they can only shell out a max of £50,000 (£100,000 for joint pension claims) although that’s going up on 1^st April to £85,000. Bear in mind, if you use a Claims Management Company, you’ll pay 20-30% commission.

Links to FCA, FSCS, PAS.