Savers could withdraw more than £5bn from pensions in April surge

Up to 400,000 people are poised to withdraw in excess of £5bn out of their pensions in the weeks following the introduction of the pension freedoms in April, Hargreaves Lansdown is predicting.

It says over-55s keen to access their pensions will lead to a “market surge” of more than £5bn which will mainly be spent, with some reinvested in banks, Isas and property.

The decline in sales of annuities will eventually mean the market is at between 25 and 50 per cent, the firm says.

It also warns fraud “is going to change” and may not be picked up by statistics and that demand for transfers from defined benefit to defined contribution schemes will limit the resources of the advice industry.

It will become easier for unscrupulous firms to target customers within the law and will not longer have to go to the trouble of setting up fake schemes, Hargreaves warns.

It says: “They will be able to target the over 55s and persuade them (quite legitimately) to take money out of their pension to reinvest in some attractive sounding scheme such as an overseas property development. These schemes will be unregulated, which means if they fail to meet investors’ expectations, there will be no regulatory intervention and no compensation.”

The firm adds that the next Government will find it difficult to track savers’ behaviour.

It says: “The Treasury has yet to set in place any measures to track investor behaviour or the flow of money through the pensions system. When challenged on this, the Treasury stated that it would use HMRC tax receipts to monitor outcomes.

“However this is a like trying to gauge your bank account balance by counting the number of Amazon parcels being delivered to your front door; it might give you a rough indication but it is hardly robust.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Bethell Codrington 4th March 2015 at 5:17 pm

    Up to £5bn of consumer spending injected into the economy just before an election, and an additional £1bn +/- in tax revenue ….. ummh.

  2. I am sure that Mr Osborne was well aware of the political benefits when he drafted the legislation and decided on the timing.

    With regard to the fraudsters, that is a problem for the FCA and Government to warn consumers about, and as the potential investments are unregulated we should not end up paying for it.

  3. Julian Stevens 5th March 2015 at 9:20 am

    Whilst an ill (or non-) advised dash for cash has been predicted by various bodies, it would be interesting to know how this estimate of £5Bn has been arrived at. Should it turn out to be anything like accurate, it may well indicate a sorry failure on the part of the PGS to save people from their own impetuous folly, not to mention that of the legislation itself that will enable people to commit such acts. One only has to consider the number of people whose finances are a complete mess to see that unfettered access to pension funds is going to be an open charter for people to act in haste and then fall prey to unscrupulous outfits talking them into completely unsuitable investment schemes promising wildly unrealistic combinations of fantastic returns with low risk. I really hope it doesn’t happen though I fear it may well.

  4. Don’t get too wound up guys. The 400,000 is the total number who COULD do it but that is just about the entire year’s of Retirees. My own view is that it is just a way for HL to be keeping their name in the press. It is hardly likely to affect a lot of the adviser community badly. Our clients have relied on us for many years and I would think the vast majority of them will not smash and grab. Those who see this as a good opportunity to get a pile of cash, may even clear some debt, so relax, sit back and enjoy the flight.

  5. Lets consider:

    A) Person A transfers their pension fund into a SIPP, having taken advice on the transfer, which, without advice, he/she invests in an unregulated investment – now covered by the FSCS.
    B) Person B draws out their pension fund under new flexibility post April 2015, again without advice, which he/she invests in an unregulated invested – wont be covered by the FSCS.

    Exposes the lunacy of the system.

  6. Sean – “B) Person B draws out their pension fund under new flexibility post April 2015, again without advice, which he/she invests in an unregulated invested – wont be covered by the FSCS”.

    There have always been “unregulated investments” which scammers/fraudsters have purveyed for years (how many time has the Eiffel Tower been “sold”?).

    The greedy will always fall foul of such no matter how much education or guidance is given. You can only go so far before caveat emptor has to apply and the blame falling squarely on the individual falling for the scam.

  7. Graham the point I was making that in both instances a client, greedy or not, makes a decision to invest pension funds in an unregulated investment and yet one has potential recourse to the FSCS whilst the other doesn’t.

    In my opinion where no advice was given on the underlying investment there should be no recourse to the FSCS.

  8. Sean

    It does seem anomalous but presumably the feeling (cannot be stronger than that) from the FCA is that SIPP holders ALWAYS take advice prior to making an investment. Patently not true but I also cannot fathom why the FSCS should pick up the tab for non-advised investment decisions .

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