Proposals set out in the Pensions Bill could see IFAs having to advise their clients to leave their occupational pension schemes, despite that being exactly what happened during the last pension mis-selling scandal, warns an industry expert.
According to the latest reading of the government's suggested changes to the world of pensions, people will be able to choose between three different kinds of transitional protection, in the hope they will not be worse off as a result of the new legislation.
One of the options - enhanced protection - will give people full protection from the recovery charge on the fund at vesting. However, all pension accrual must cease when the new rules come into force. This effectively means pension scheme members have to opt out of their schemes.
Alasdair Buchanan, group head of communication at Royal London Group, warns this could lead to a mis-selling crisis similar to that faced by the pension industry over the last 15 years.
In the late eighties, the government introduced new rules allowing people to take out personal pensions, rather than staying with their occupational pension schemes.
Hovewer, this led many financial advisers to recommend switch to a personal pension when it was not their best option. Thousands of people were negatively affected by this, Buchanan says, and since the IFAs making this recommendation did not have any clear evidence this had been the best thing to do for their clients, it was clear proof of mis-selling.
This could easily happen when IFAs are trying to advice their clients about what protection to go for, he says, as there is no guarantee enhanced protection is going to give clients the best outcome.
If worse comes to worse, clients may even end up financially worse off, he adds.IFAonline
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