In a report published by the public accounts committee (PAC) on Thursday, UK MPs urged the Financial Conduct Authority (FCA) and the Treasury to do more to understand what products are currently being mis-sold and how it intends to tackle this.
MPs said that despite pension freedoms giving people unrestricted access to their retirement savings, opening the market up to more complex products is more likely to lead to fraud.
As part of an enquiry into Britain’s financial services industry, the report also called on the regulator to crack down on the culture of mis-selling at some firms – often driven by their sales targets.
“The FCA has taken some action to deal with these root causes, for instance by promoting changes to firms’ incentive structures and better training of financial advisers,” the report said. “The senior managers regime aims to get senior people to take greater responsibility for the actions of those they manage. But the risks of mis-selling remain, for example pensions freedoms reforms are a potential trigger for future mass mis-selling.”
The PAC has given the FCA a year to set out what it will do to ensure consumers understand exactly what they are buying and what their rights are with regards to compensation.
Committee chair Meg Hillier criticised the FCA’s decision to scrap plans for a review into banking culture as “deeply worrying", pointing out that the regulator is “best placed in the system to conduct such a review".
“It is vital the government and regulators take fresh action now to better protect taxpayers’ interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation,” she said.
Powers to cancel suspicious schemes
Francois Barker, head of pensions at Eversheds, said: “Many pension savers have welcomed the flexibility that pensions freedoms reforms have brought. However the new arrangements also leave the door open to scheme members being led astray and tempted to transfer their pension pots to scams run by fraudsters.”
Baker added that the easiest way to prevent this kind of problem would be to give pension trustees and providers the power to cancel transfers from suspicious schemes.
“Recent court decisions mean that it is almost impossible for pension trustees or providers to block transfers even where they suspect very strongly that the recipient scheme is a scam. One very effective way to prevent pension savers from being misled would be to change the law to give pension trustees and providers the power to suspend or delay transfers to unsuitable recipient schemes,” he said.