Retirement

Free Pension Advice Is A Scam, Warns Watchdog

Free pension advice is a scam, according to a leading consumer watchdog

The warning has gone out to anyone contemplating moving their pension savings away from a defined benefit scheme.

The Financial Conduct Authority, the government agency that polices financial services in the UK, issued the alert to point out the risks of moving money away from a direct benefit/final salary pension.

“Free pension reviews are designed to persuade you to move money saved in an existing pension pot to a new scheme. Chances are your money will be invested in something that is either very risky or a scam,” says the FCA.

“Professional pension advice is not free. Professional advisers looking to act in your best interests are very unlikely to cold call you to offer their services.”

Pension transfer risks

The FCA also wants to make sure pension savers are aware of risks when they move their money between pensions, and lists some warning signals:

  • Some pensions are poorly run, while others are outright scams. As they are promoted as long-term pension investments, several years could go by before savers realise something is wrong.
  • Even if the investment is reasonably well run, unusual investments are unregulated and high risk, so investors could lose a lot money. Returns are not guaranteed, and it is generally difficult to access money
  • Where cash sums are offered, do not forget they generally come with tax charges of up to 55% of the amount if savers are aged under 55 years old.
  • Most of the companies in this market are not authorised or regulated by the FCA. This means pension savers may have no right to complain to the Financial Ombudsman Service or to claim compensation from the Financial Services Compensation Scheme if things go wrong.

Look for impartial advice

“For most investors, investing their pension savings in unregulated investments is unlikely to be in their best interests – you could lose everything you have invested, significantly reducing your retirement income. All investment alternatives should be considered and leaving your pension pot where it is may be the best decision,” says the FCA.

“If you are considering investing some of your pension pot in unregulated investments, you should first seek impartial advice from a financial adviser unconnected to the firm that has contacted you.

“Financial advisers should provide you with a professional assessment of the risks and potential benefits of the investment. They should let you know if they have concerns that the investment is riskier than you were told, or simply unlikely to work out as promised.”

Leave a Comment