Lawyers warn against high-risk investments in the wake of pension reforms

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A man holding a bag of money on a collapsing staircase

Financial planning in association with Scottish Widows bannerPotential for uptake of unregulated products is high, and many consumers remain uninformed, experts caution

Pension freedoms introduced earlier this year could launch a wave of high-risk, unregulated investment products, UK lawyers have warned.

Following landmark changes to the UK pensions regime in April, retirees can now choose how to invest their savings, rather than being forced to buy annuities. Retirees have withdrawn around £1.8bn from pension pots since the new rules took effect in April.

Traded life policies, American life assurance policies and overseas property and land are among the asset classes which might be deemed unsuitably risky, with generous commissions paid to “introducers” operating outside the UK regulatory framework. Some have collapsed when investors tried to withdraw funds, while others are now subject to fraud claims.

“There’s a huge danger, in that we now have a lot of people needing to make investment decisions who have never made them before,” said Pradeep Oliver, head of professional negligence at professional negligence solicitors NeglectAssist. “Interest rates are low, and that opens the door to people selling exotic, riskier investments.”

Tobias Haynes of law firm Regulatory Legal agrees: “Many of the people we represent were advised to invest at least 75 per cent of their pension savings,” he said. “Most of them had no clue as to how risky these investments are.”

Meanwhile, the work and pensions committee recently announced that there would be an inquiry into whether enough advice is available to those looking to exploit the new freedoms.

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