Storage pods and car park investments: ‘Dispatches’ exposes pension risks as April approaches

The Chancellor George Osborne is taking “a big bet” that people can be trusted with their own money in “one of the great financial gambles of our time”, Channel 4’s flagship investigation programme Dispatches warns.

Aired last night, the episode titled ’How to blow you pension’ focussed on savers’ plans for splashing their cash on expensive holidays, the risk of pensioners running out of money too soon and the proliferation of pension scams, including investments in foreign car parks and self storage units.

In one case, a firm tried to convince a saver to invest their pension in supposedly low-risk parking bays in the Middle East and a forest in Central America with projected returns of 197 per cent.

In another, a saver was told he would get a lump sum and an investment in self storage units Store First if he handed over his entire pension savings. But the lump sum payment was delayed by 11 months and he had not received any return on his promised investment. Store First confirmed it has sold units to a pension scheme which the individual “appeared” to be a member of.

The programme also quoted Hymans Robertson research that says the Government has massively underestimated how much will be withdrawn from pensions after April when the freedoms come in.

Presenter Michael Buerk also took pensions minister Steve Webb to task over one “big” unnamed pension provider’s welcome pack which he said stated members’ savings would automatically be used to buy an annuity from the provider unless the individual told them otherwise.

Webb replied: “That’s quite exceptional for a policy to default into annuities. The norm is that the regulator, the FCA, is contacting the companies now and working out simple, standardised information they will have to give to people.

“Will it all be done by April? No, but you could put this off forever until you’d got it perfect and you’d never do it.”

The pensions minister said there was a “diversity” in the industry between “those firms who get it and realise their reputation is so tarnished they’re shooting themselves in the foot” and “a minority still in the old ways of thinking”.

He says: “There are still too many people thinking we can just do things quietly, no one will notice and that’ll keep our customers where we want them.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. A 62 page pre-retirement pack from a well known but unnamed insurance company, (allegedly) heavily slanted towards persuading its reader to buy an annuity in-house. And to think this is still happening in 2015 whilst all the FCA does is witter on vacuously about how people aren’t shopping around enough. It beggars belief.

    Had the FSA/FCA simply mandated OM as the default option, such documents would (rightly) be illegal. The fact that it hasn’t is, to my mind, regulatory negligence. And the FCA doesn’t have the decency to tell us why it won’t enact this measure.

    I wonder if APFA asked and, if it did, what response it got. Anyone?

  2. “Allegedly” is the operative word on the pre-retirement pack issue. All that I have seen in recent years have made it crystal clear, provided you have the wit and patience to read them, that an OMO is available, and that the policyholder should seek advice.

    As for the idiot who allowed his money to be put into storage units, well as we know, a fool and his money are still very easily parted Did he seek alternative (proper) advice? Presumably not, as he seems to have been driven by greed rather than common sense. Danny Cox presented his views clearly, but it would have been better if the program makers had allowed him and the other IFA interviewed more time and opportunity to expand their comments

    More worrying, the woman in (allegedly) poor health, who bought an Aviva Annuity (on enhanced terms?) allegedly through an IFA, asked indignantly ‘what happened to her purchase money if she died early’ and ‘do Aviva keep it’? Does this mean that the Adviser concerned failed to explain to her, and failed to ensure that she understood, the nature of an Annuity?

    Does it also mean that he/she failed to explain the option of Income Withdrawal, which may have been attractive to her, given her health issues and wish to see her pension money pass on?

    This was a little better presented and explained than some of these ‘exposure’ programs, but still fell woefully short of presenting a balanced and clear presentation of the issues.

  3. @Julian

    Yes, you have to ask yourself what the value is of a regulator who doesn’t tackle head on uncompetitive practices.

    And as for some of the specific problems – sales of dodgy investments and the wrong types of annuities – maybe the FCA would better achieve its statutory objectives if it engaged in a large scale advertisement campaign extolling the benefits of bona fide authorised financial advisers?

    @Gerry Cooper
    Listening to that bit now. £40k pension pot provides an income of £4k per annum. Obviously an enhanced rate. Yes, she clearly didn’t grasp that if she died early, she is subsiding/insuring those who live longer.

    But here’s the funny thing. FCA is very keen to smack advisers who recommend what they regard as complex investments or products e.g. from ‘drawdown’ through to ‘alternative’ investments. Yet annuities can be complicated to understand depending on the level at which you try to understand them.

  4. MiB ~ Indeed, just WHY won’t the FCA engage in a large scale advertisement campaign extolling the benefits of bona fide authorised financial advisers? Provided it undertook a properly competitive tendering process (as it usually seems not to, which is why pretty well every one that it commissions to any outside party seems to carry such an extortionate price tag ~ but, hey, it’s all just OPM, so WTH?), I for one would support such an initiative.

    Similarly, it should also engage in a public awareness campaign to warn people of the dangers of unregulated advice to invest in unregulated investment schemes. In fact, as I’ve already posted elsewhere, the FCA should outlaw all and any unregulated investment advice. On what basis can it possibly argue against such a move? It’s a criminal offence to impersonate a police officer and, so I believe, to impersonate a medical doctor (it certainly is in the USA and even for qualified doctors to practice without a current licence, rather like the annually renewable SPS required of UK authorised financial advisers). Why should it be any different when it comes to the dispensation of financial advice?

    It’s truly ridiculous, and a shameful reflection on the woeful ineffectiveness of our regulation system, to think that, as FS regulation approaches its 30th birthday, people are still being flogged unregulated investment schemes by unregulated agents masquerading as financial advisers and the FCA has no powers to do a damned thing about it.

    It would be nice to think that the TSC might put this question to Martin Wheatley but, in all probability, the response would be just some typical fob-off along the lines of how the FCA is too busy working on other things (like making life ever more difficult for bona fide intermediaries). Prioritisation of resource allocation, Mr Wheatley? Yeah, yeah, we’ll think about it and get back to you (if and when we can be bothered). You could hardly make this rubbish up.

  5. I was also wondering why the FCA appears to be happy with the Wellesley & Co advert which appears on the surface to be a bank account offering 4% interest but is actually peer to peer lending (small print at the bottom of the screen).

  6. Dear MM

    Do you think Nic might make comment on this issue ?

    Regulated V Un-regulated, and why the FCA or other, is so unwilling to engage ?

    It seems there is a lot of worry and concern, as Nic is a bit (can I say) marmite, like him or hate him, but I think he would give an honest account !

  7. Get a reality check people. Unregulated schemes should be allowed to remain in place. If they are not properly promoted or they deceive people then the law of the land is there to prosecute those who sell them and those who “make” them. Regulation does not exist in a vacuum, and should not be thought of as more important then the law itself. Bankers and traders who fraudulently manipulated the LIBOR rate should be tried in court and if found guilty sent to prison. They have committed fraud and broken the law. Never mind being banned from being directors and being de-authorised, they should be prosecuted. However, unregulated investment schemes should not be banned just because they are unregulated. Some investors have an appetite for such schemes, and some sophisticated and wealthy investors may want the excitement of such schemes. I think they are unwise to think this way but it is their money and as long as they clearly understand the risks of such schemes they should have no cause for complaint if they lose all their money. So rather than the regulator it should be the law of the land which deals with fraudulent promotion and selling of such schemes. When these schemes lead to compensation for mis-selling, I do not for the life of me understand why the regulated adviser community should pay for the costs of compensating investors who fall foul of illegal or mis-sold schemes. They are not regulated investments and so are no more part of what we do than other investments e.g. bottles of wine, houses, classic cars. And equally making regulated advisers pay for unregulated advisers’ sins is like making the Police force take the consequences for those who commit crimes whilst impersonating police officers. Bloody ridiculous!! So regulators should regulate the regulated advisers and commercial, civil and common law should deal with the illegal activities of anyone else calling theirself an adviser.

  8. Saw the Wellesley advert this weekend, have to say it is shocking in its lack of clarity. No apparent detection of peer to peer…Come on FCA, those sort of adverts should not be sailing under your radar!

  9. Not all unregulated investment schemes are bad, but the issue here is the promotion and sales of high risk, flaky schemes by unregulated outfits that simply don’t warrant the label advisers. They’re just product floggers who can and do tell potential investors pretty much anything likely to persuade them to invest. There’s no legal requirement for them to document any of their promotional spiel and no liability if the scheme in question fails to deliver what’s been promised.

    Originally, it was encumbent upon regulated advisers selling unregulated schemes to make very clear to investors that in the event of said scheme failing, they [investors] would have no form of regulatory protection, such as the FSCS. But, with nothing in the way of consultation, the rules were quietly changed some years ago so that now, if a single regulated intermediary sells a scheme that goes down the pan, the FSCS takes on responsibility for compensating investors and bills the regulated intermediary community accordingly.

    If regulated intermediaries feel sufficiently confident in an unregulated investment scheme to recommend it (which a few may), then on their heads be it if their advice is found subsequently to have been unsuitable (which, if the scheme falls apart, it almost certainly will be). But UNregulated intermediaries selling unregulated schemes is an entirely different matter and that, not the schemes themselves, is what should be outlawed.

    It’s hardly as if the FCA is likely to be overwhelmed by a flood of applications from unregulated scheme floggers to be granted authorisation, for the simple reason that virtually none of them will meet the basic criteria, not least QCF L4.

    So why doesn’t the FCA just outlaw the promotion of all and any investment schemes, regulated and/or unregulated,by any persons other than regulated intermediaries?

  10. I think it is unwise for the FCA to extend its reach to unregulated schemes. The law of the land should deal with the mis-selling of such schemes rather than regulators such as FCA and PRA. I just think that such investments should NOT be permitted to be held in pensions. Then they would not gain the credence which being allowable inside a pension wrapper offers. If things like car park spaces and storage pods are NOT allowable investments then they would not be associated with financial advice, and anyone selling them would be selling purely on risk and return. And if people want to expose themselves to such assets then caveat emptor. Should we be responsible for estate agents and surveyors mis-selling and mis-representing houses and buildings? No! So just disallow these high risk assets as being unsuitable for collectives or pensions. Then its job done on regulation, and leave it to the law. If any other product is promoted or advertised deceitfully then the Trade Descriptions Act and Advertising Standards Authority are there to deal with such issues. By disallowing eligibility for pensions and collective investments then it takes it out of our arena. There is a fine line between this kind of thing and some EIS/VCT schemes, and so care would need to be given as to what is and what is not allowable in these kind of wrappers.

  11. I agree with Brian Gannon re not allowing in Pensions and Collectives and the fine line re EIS/VCT

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