Pension changes ‘create risk of buy-to-let mis-selling’

11th February 2015

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The pension reforms being introduced in the UK this April will bring about inevitable mis-selling claims, with saver particularly at risk of making poor buy-to-let investment decisions, Scottish Friendly has warned.

The mutual believes more needs to be done to ensure that pensioners and their retirement savings are protected.

New pension legislation will offer individuals more control and flexibility around how to manage their retirement funding, but Scottish Friendly is concerned that the UK will see large numbers of pensioners targeted by salespeople bent on separating them from their lifetime savings, with particular concern being the buy-to-let market.

Domestic and overseas property agencies are already sending out marketing materials to reach pensioners ahead of the changes.

Neil Lovatt, product director at Scottish Friendly, said: “There are great opportunities in these reforms, but also real dangers. A mis-selling scandal of some description is almost inevitable as pensioners get targeted and exploited. The biggest concern is that pension assets will be used and abused outside the confines of the protection currently afforded by the regulated financial services sector and individual advice.

“One area of particular concern must be the buy-to-let market. In 2004 the Government proposed to enable the purchase of residential property within a SIPP, which caused an unseemly tidal wave of marketing by the buy-to-let sector. Fortunately, just as the great transfer of assets in pensions to property was about to get underway, the Government had the courage to U-turn on its proposal.”

But Lovatt believes there will be no backtracking on the policy this time around. He said there is a danger that people with substantial pension funds will be encouraged to withdraw them, probably on poor tax terms, to invest in a buy-to-let property or worse put down a substantial deposit on a mortgaged buy-to-let property.

He said: “Whilst tempting for many to invest in a ‘real’ asset, the simple fact is investing in such a way will inevitably leave some pensioners high and dry. With such volatility in the market and the potential to be caught in property bubbles, it is likely that we will see a large number of pensioners at risk of losing their retirement savings if the market turns against them. Ultimately we will only know if people get mis-sold investments if pensioners find themselves left out in the cold, but by that time, it will already be too late for many.

“Short of a politically unacceptable U-turn on the policy, we need the FCA to take a more definitive stance to present strong negative risk warnings about using pension benefits for unregulated investments or doing so without detailed personal advice from a qualified financial adviser. Its predecessor, the Financial Services Authority did so in the past with precipice bonds and the structured capital at risk product regulations (SCAPRS), albeit after the horse had bolted.”

Lovatt called for “strong and brave action from the FCA to close the gate whilst the horse is still in the stable”.

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