Mon, Sep 17, 2018
Pension Freedoms: Where Are We in the Battle to Protect Investors?
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There have always been fraudsters and thieves, but pension freedoms, which were implemented April 2015, may have made it easier for scammers to prey on those looking for higher rates of return on investments.
The latest HM Revenue and Customs statistics on flexible payments regarding pensions show that £6.7 billion was withdrawn by 375,000 investors in the last 12 months, and £17.5 billion has been withdrawn from pensions since the changes were introduced.1
Pension freedoms are fundamentally beneficial, providing people with welcome control and flexibility over their retirement savings. However, these reforms have also increased the risk of retirees being targeted by scammers.
According to The Telegraph, 222,000 pensioners have made half a million withdrawals in the first three months of this year alone - 20,000 more than the last quarter of 2017. The total withdrawn in 2017–18 was £6.7 billion, the highest figure since the reforms were introduced in 2015.2
Some pensioners have chosen to invest without taking professional advice. This DIY approach of chasing higher returns could be exposing them to a high level of risk since many are unregulated, illiquid and based on high commission rates. At worst, the pensioners could be increasingly exposed to fraudsters.
Recently, the market has seen a number of investment products promising very aggressive rates of return. In some instances, these are being revealed to retail investors anxious to see the return of their invested pension savings.
However, we suspect that many remain unexposed because retail investors are concerned that this exposure would ruin the scheme and likely result in them permanently losing their money.
Retail investors should become more knowledgeable about their rights, specifically regarding any contractual arrangement with the company or legal entity in which they have invested. For example, if an investor has the right to be repaid capital and/or interest on a certain date and it has not occurred, they should consider enforcing their rights and not merely relying on assurances of future payment from those running the schemes.
Sources:
1 https://www.gov.uk/government/statistics/flexible-payments-from-pensions
2 https://www.telegraph.co.uk/pensions-retirement/financial-planning/pension-freedoms-gaining-momentum-record-numbers-withdraw-cash/
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