Wealth manager Hargreaves Lansdown has warned transfers from final salary pension schemes threatens to be a 'mass mis-selling scandal' to rival that of the 1980s.
Its claim comes amid evidence of a jump in the number of people using the 2014 pension freedom rules to transfer their stakes in 'defined benefit' (DB) schemes provided by employers to self-invested personal pensions (Sipps).
Rising transfer values are thought to have encouraged more people to consolidate their pensions with Sipps even though they may be giving up valuable retirement benefits to do so.
According to technology provider Selectapension, there were 48,278 transfer analysis requests by independent financial advisers in the 12 months to 31 March â€“ almost double the previous year when 24,501 were recorded.
It is not known how many of these analyses led to transfers, although data from Willis Towers Watson has shown over half (55%) of defined benefit scheme members who spoke to an IFA about transfers, proceeded with the switch last year. This was from a survey of 170,000 members in 350 schemes.
In January the (FCA) issued an alert which said it was â€˜concernedâ€™ over transfer practices it had seen.
Hargreaves Lansdown has now echoed these concerns and warned of the potential risks involved with transfers from defined benefit schemes.
Tom McPhail, head of policy at Hargreaves Lansdown, told Citywire: â€˜We are increasingly concerned of the risks both to investors and to the financial services industry. In this post pension freedom world, and with pension transfer values at record levels, it is very easy to be seduced by the lure of short-term cash.â€™
Referring to the mis-selling scandal in the mid-1990s where people were advised to leave their employerâ€™s pension scheme, McPhail said there was a risk history could be repeated.
â€˜There is nothing today to suggest the world is fundamentally different from 25 years ago, when the industry perpetrated a mass mis-selling scandal on unsuspecting final salary scheme members,â€™ he said.
â€˜There is a risk we could see the same thing happening, with investors losing money, followed by extensive regulatory intervention and a very substantial cost to the industry, both financial and reputational. Letâ€™s make sure that doesnâ€™t happen again.â€™