EDINBURGH (Reuters) - Britain’s pensions market is entering unchartered territory where people can blow their savings in Las Vegas or fall prey to scams unless they get proper advice on alternative ways to use their pension pots, a top regulator said on Wednesday.
Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), told a conference that the industry would be entering “the great unknown” when reforms are introduced next month.
Retirees will from April be able to spend their pension pots as they choose, rather than being obliged to buy an income-bearing annuity.
“Some savers, come 55, will invariably head to Las Vegas, buy fast cars or otherwise calculate how to run down their pension pots in days and months, rather than years,” Wheatley told the National Association of Pension Funds conference.
Wheatley said there was a possibility the first round of pensioners to enjoy the new freedoms would be targeted by criminals.
“Scams and fraud, we know, tend to proliferate at the moment of maximum uncertainty,” he said.
“This will be the moment of maximum uncertainty.”
The pensions industry has faced criticism for not being prepared for the changes. The FCA recently published guidelines for the industry, which included warning customers about investment scams.
Wheatley said fraudsters were already targeting the government’s Pension Wise advice service, replicating the website to direct customers to inappropriate investments.
Wheatley said there were 30 billion pounds ($45 billion) in assets in workplace pension schemes that were considered poor value for money according to a 2013 survey, a situation which he said was “unsustainable”.
The FCA said last month it expected to launch a competition probe into the country’s 5.4 trillion pound asset management industry to see whether customers are being overcharged.
Wheatley said there was “too much opacity” around execution fees, and there was a massive differential between the amounts charged to wholesale and retail customers for similar products.
“These are questions we will look at and come back to at the end of this year and see if justification for these fees exist.”
($1 = 0.6692 pounds)
Additional reporting by Huw Jones in London; Editing by Simon Jessop and Mark Potter