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Beware frauds and bad deals when selling your annuity

Plans to allow annuity sales could leave savers vulnerable to fraud or a bad deal on their policy.  


by Michelle McGagh on Dec 17, 2015 at 11:03

Beware frauds and bad deals when selling your annuity

Pension scams are on the increase and a fresh wave of frauds could hit pensioners who want to cash in their annuity.

A report by tax experts RSM shows experiences of pension fraud has more than doubled in the past two years as 37% of pension schemes report instances of fraud compared with 17% in 2013.

Much of the increase can be blamed on pension freedoms, which have arguably made it easier for fraudsters to part retirees from their savings with promises of high investment returns.

According to RSM, one in seven over-55s have been targeted by pension fraudsters, with a quarter of the scams offering investment products and 27% offering ‘exotic’ investments.

A total of 69% of the scammers offered free pension reviews as a way to try and get their hands on pension cash.

With scammers relentlessly targeting pension savings, there are fears the plan to create a second-hand annuity market, which will allow retirees to sell their annuity for a cash lump sum, will encourage a new type of sophisticated fraud.

Andrew Tully, retirement expert at Retirement Advantage, said retirees who wanted to sell their annuity should make sure they do so through a UK-based company as overseas companies are not regulated by the Financial Conduct Authority (FCA).

Under the rules set out by the Treasury, ‘all UK-based annuity purchasers and intermediaries’ will be required to be FCA regulated.

‘If you are in the UK, you need to be FCA regulated,’ said Tully. ‘But if your company is based overseas the FCA does not regulate you so that raises the possibility of fly-by-night companies persuading people to sell their annuities for a poor value.’

He also warned that fraudulent companies could offer retirees the chance to sell their annuity for an upfront fee which they would never see again as ‘the company disappears off into the sunset’.

Getting a bad deal on the annuity sale will be just as damaging for pensioners as fraud and Michelle Cracknell, chief executive of The Pensions Advisory Service, which provides the government’s guidance service Pension Wise, has backed the government’s plan to push retirees to shop around for the best annuity deal.

The government has asked the regulator to put in place ‘a consumer protection framework which could include... risk warnings and ways for consumers to understand the fair value of their annuities’.

Cracknell said regulated brokers or ‘market makers’ could be the ones entrusted with putting annuities out to tender and getting a range of quotes from the market.

Not only would this reduce the risk of fraud but it would also ensure retirees shopped around for the best deal for their annuity, rather than going back to their original annuity provider – something which the government was keen to avoid, said Cracknell.

‘If there are market makers then that makes the job [of selling an annuity] easier,’ she said. ‘If we are using market makers then [TPAS] can give people a checklist to make sure [the market maker they are working with] is legitimate.

Cracknell said one company she has been in contact with wants to offer a broker service and ‘all the consumer would do is give them the policy number and [the company] would go to the incumbent [annuity] provider to get the full details and then go to market [on behalf of the retiree] and ask what price they would give for the annuity,’ she said.

She added the rules must ensure people shop around for the best deal for their annuity but warned that any cost incurred through using a broker or market maker should be transparent.

‘All pensions are vulnerable to scams because of people’s lack of knowledge and the lack of value attached to [the pension or annuity]... first we need to get people to understand what their pensions are worth,’ said Cracknell.

4 comments so far. Why not have your say?

Michael Loveridge

Dec 17, 2015 at 18:33

I sometimes think that the ministers coming up with these schemes must for some reason actively want to encourage fraud.

The theft of people's pension funds by fraudsters following `pension freedom' is now happening on an industrial scale, and it's all down to the fact that any thief can very easily set up an `investment' scheme without any regulation whatsoever, selling crap `investments' through crooked financial advisers on 30 - 40% commissions.

All they have to do to avoid the law is to get the poor punter to sign a (false) declaration that they are a high net worth individual / sophisticated investor and they can then quite legally steal the poor punter's money. It has all the hallmarks of the fraudulent `self-cert' mortgages that were one of the main causes of the financial crash. Everyone knows that it's a tissue of lies but nobody steps in to prevent it happening.

If you want a vivid illustration of the sort of schemes that are being set up to fleece punters listen to the `You and Yours' programme on Radio 4 for 3 December -

It will make your blood run cold. Literally hundreds of millions from pension schemes like that run by the Post Office - about as safe as you can get - have been diverted into hopeless `investments' that are now worth next to nothing, while the directors live the high life on their ill-gotten gains.

This government is acting with utter recklessness, and should be thoroughly ashamed of itself. Its laissez-faire attitude is also going to cost it (or more accurately us as taxpayers) billions in the future, as we will all have to provide financial support for those people who have been defrauded of their money.

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Michael Loveridge

Dec 17, 2015 at 18:36

Sorry, the link provided is out of date - this should work -

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Michael Loveridge

Dec 17, 2015 at 18:39

Sorry again, that link was to the right programme, but it was a follow up to the original. This is the link to the original programme -

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Dec 18, 2015 at 16:40

Michael Loveridge - 'A fool and his money are easily parted'. 'Twas ever thus.

No amount of legislation or regulation is going to stop that.

I'm tempted to say that anyone who bought an annuity since April 2006 (when they stopped being compulsory) must be pretty dim. But I won't.

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