Concern is growing about an unfolding mis-selling scandal in pensions advice as compensation for successful claims has doubled between 2016 and 2018.
Pensions expert Josephine Cumbo said payouts have been made to savers who were wrongly advised to give up ‘gold-plated’ company schemes.
She added that 19 firms have quit the pension transfer advice market since pension freedoms started in 2015 because investigations by the Financial Conduct Authority (FCA) found problems with the advice given to savers.
In an update given in December, the FCA said that less than half of the advice it had reviewed from 18 firms covering 25,000 transfers was either suitable or right for the customer.
The Financial Services Compensation Scheme (FSCS) has reported that mis-selling payouts for cases it had been involved in had more than doubled between 2016 and 2018 to over £40 million.
Experts believe this is only the tip of the iceberg as FSCS only deals with cases where the advice firm has gone out of business.
Blaenau Gwent MP Nick Smith, who requested the information from the FSCS, said: “The fact that the compensation paid out in these cases has doubled to £40m in just two years is absolutely shocking.
“Many people — including some of my constituents — ended up losing thousands of pounds of hard-earned money because of the poor advice they were given.”
The FSCS claims ‘vulnerable’ consumers are being ‘persuaded’ to give up valuable company pension direct benefit rights and end up making unwise investments.
Chief executive Mark Neale said: “We see many examples of mis-selling as both regulated, but also increasingly unregulated advisers, promote risky, illiquid investments.
“We see providers who fail to perform rudimentary due diligence on these investments.”
Former FCA board member Mick McAteer said: You’ve had the perfect conditions here for a scandal to unfold, with billions of money flowing out DB schemes and people not getting the good advice they need.
“The FCA really does need to get on top of this fairly quickly as the potential for financial harm is far worse than that of PPI mis-selling because these decisions are irreversible and involve very large sums of money.”
The Financial Conduct Authority (FCA) recently started a probe into the advice given to savers with self-invested personal pensions (SIPPs) following a high profile court cases against provider Berkeley Burke.
In a letter the regulator has asked them for information about their business activities and their expectation of the way the providers handle their due diligence obligations when accepting investments.