Pension freedoms” sound enticing, don’t they? Introduced in 2015, they give you the chance to liberate that sluggish old pot — often worth hundreds of thousands of pounds — and reinvest it with unprecedented flexibility. Or, if you want, you can just spend it.
This was George Osborne playing the benevolent father, handing his children the debit card and letting them make their own decisions. They could blow the proceeds on a Lamborghini if they wanted, joked Steve Webb, the pensions minister.
Fast-forward three years and the former chancellor’s laissez-faire parenting looks suspiciously like negligence as Britain teeters on the brink of the mother of all mis-selling scandals. Last Saturday, Times Money led with the case of Peter Lord, 61, a Rolls-Royce labourer with 27 years of service and a final-salary pension pot of £196,000.
Last October, representatives of a regulated financial advisory company knocked on his door. Mr Lord agreed to reinvest his savings but he has little recollection of the conversation because of memory loss caused by a childhood brain injury. The financial adviser took 4 per cent commission, £7,843, together with an ongoing annual charge of 1 per cent.
A few months later, Mr Lord’s life savings are doing very badly. By the end of March, his pot had lost more than £16,000 in value. But the financial adviser is doing just fine, as are the administrators of the products he was persuaded to invest in, all of whom are taking a nice cut. Henry Tapper, a pensions expert, describes this process as “fractional scamming” — everyone helping themselves to a slice.
Mr Lord’s experience is not an isolated case. In February, the work and pensions select committee said that steelworkers at Port Talbot in Wales had been “shamelessly bamboozled” into taking their money out of their gold-plated scheme and putting it into risky funds with annual adviser fees of 2 per cent and exit penalties of up to 10 per cent.
In March the Financial Conduct Authority, the City regulator, woke from its slumber. It proposed a ban on advisers taking commissions for arranging pension transfers. But, two months after its consultation came to an end, nothing has happened.
It is clear that what the former chancellor envisaged as freedom has become an opportunity for hawkers to target the vulnerable. Unless action is taken soon, this could go down as one of Mr Osborne’s most monumental misjudgments and the taxpayer will end up bailing out those who have been robbed of their savings and sentenced to live out their final days in poverty.
David Byers is assistant editor, property and personal finance
This article first appeared in the Times