A top pensions law firm has warned of “confusion” and “a high level of mis-selling” when the Chancellor’s pension reforms come into force in April.
Under the Taxation of Pensions Act 2014, savers over the age of 55 will be able to withdraw as much of their pension as they want as a lump sum. Currently, they can withdraw up to 25% and must buy an annuity with the remainder. Many people have welcomed the extra control they will have over their money.
However, Katherine Dandy, partner at Sackers, says: “These reforms have been introduced too quickly and come at a time when annuities have been proven to provide poor value for many people.
“Confusion and lack of understanding will result in a significant level of mis-selling.
“The biggest risk relates to members with long service who, at the age of 55, may be tempted to transfer their final salary scheme to a money purchase scheme in order to benefit from the rule changes. For this category of members the risk is significant and the money involved that could end up being mis-sold could run in to the billions.
“The mis-selling scandal of the 1990s and the ease with which people were persuaded to part with their valuable pension pots demonstrated many were totally unaware of the value of their final salary scheme. They were often mistaken by the belief that they can do better themselves by investing the money elsewhere. This proved not to be the case, and resulted in huge claims.”
