Misselling of expat pension transfers is the next major financial scandal

The next major financial scandal is expected to be pensions misselling, with IFAs and insurers hit hard.

If you’re planning a retirement overseas with the help of your pension pot, the next big financial scandal due to hit world news may well save you becoming yet another victim of pensions misselling by commission hungry IFAs. According to reports, financial advisors and insurers are due for a massive hit totalling billions of pounds for their roles in giving poor advice to novice investors. According to regulators, around 30,000 people every year are victims of mis-sold pension transfers – a third of all those taking this step to ensure their futures. Up until now, cases of deliberate misselling have been brought against the IFAs themselves, who’ve professional indemnity coverage against such an event. However, the scale of misselling is such that their insurers are cancelling their policies as they’re unwilling to get caught up in a huge number of possible claims against their clients.

The size of the misselling problem is massive, as are the amounts involved, as retirement savers can easily have funds worth up to a million pounds, a sum which could wipe out individual IFAs as well as smaller firms should a judgement go against them. Pensions savers may not realise their IFAs have only minor professional indemnity cover or none at all, but the Financial Conduct Agency’s figures show the average transfer is £215,000 and the total of transfers made over the past 12 months amounts to a staggering £42 billion. According to a director of a professional indemnity firm, advisors are now queuing up to get insurance on a ‘better late than never’ basis, and Individual advisors are now doing 1,000 pension transfers annually, as against just two or three over the same period of time.

IFAs and financial advice firms are blaming the situation on the British government’s introduction of pension freedoms which allow retirees to take their cash rather than a guaranteed retirement income. The changes were especially welcome for would-be expats approaching retirement, but those already living overseas were immediately at risk of fraud as well as misselling due to the high number of unregulated and unregistered expat IFAs targeting favourite retirement hubs in Europe as well as Asia. Many saw their savings disappear, followed swiftly by the IFAs concerned and may now be more than happy to watch as a substantial part of the financial advice sector goes into meltdown.