Comment: Here’s how best to avoid pension pitfalls

This country has just undergone the biggest change in the pensions regime for many decades. Picture: Jon Savage.

For many people with a grievance, the solicitor is the last line of defence.

Although some members of the public are rather too quick to want to sue, the vast majority will usually only consult a solicitor if they believe their grievance or issue is unlikely to be settled by conventional, non-legal means.

And after that, it is amazing how quickly just a solicitor’s letter can bring about a resolution to what had seemed an intractable problem!

For this reason, there may be a danger of believing that the law is an option that can be used to resolve, in favour of the appellant, any dispute to come out of the reform of pensions which became applicable this month. In theory, this is true – but only for those with an inexhaustible pit of money.

But first to recap. The country has just undergone the biggest change in the pensions regime for many decades with new pensioners in non-occupational schemes permitted to draw out their entire fund if desired rather than be forced to buy an annuity (income for life) or draw down the money annually at capped levels.

Consequently, many more newly retired people than before will be seeking independent financial advice. This need not necessarily be a minefield, even for the unwary. There is no shortage of choice of IFAs (Independent Financial Advisers) out there and those registered with the Financial Conduct Authority (FCA) will be (or should be) reputable.

As every private client solicitor is aware, members of the public often use the law to seek financial compensation from reputable companies (including those who are part of the FTSE 100). That however, is usually because it is relatively simple for the solicitor to gauge the time (and therefore expense) involved and to advise the client as to the likely chances of success if court action should be necessary.

Taking action against an IFA, or indeed any financial adviser, on the basis of loss through bad pensions investment advice is likely to be a lot less clear cut.

All financial advisers must act with the skill and care reasonably to be expected of them, and they can be sued if they do not. However, proving this is likely going to be difficult. A detailed understanding of what actually happened will be needed, and an independent expert approached to give an opinion. This is likely to be an expensive business – you’d need to get an opinion from an expert IFA to the effect that the advice was actually negligent when given, not just that it turned out to be wrong, or was not the best possible advice. There’s a lot of scope for argument and disagreement and if the client has just lost a lot of money, it is probably the last thing they will want to do.

You should be even more wary about suing, or even dealing with in the first place, unregistered financial advisers because they are more likely to be cowboys with no assets, qualifications or insurance. For this reason, securing a lawyer to take the case on no-win-no-fee arrangement would be difficult.

So in a nutshell, it’s a case of prevention being better than cure. Before seeking the advice of a financial adviser, check beforehand that the adviser is authorised by the FCA, which gives access to the Financial Services Compensation Scheme (FSCS), and is the UK’s fund of last resort for customers of authorised financial services firms. The scheme may pay compensation if a firm is unable, or likely to be unable, to pay claims against it, usually because it has stopped trading or has been declared in default. Individual consumers are not charged for using their service.

The FCA website invites consumers to check the register, which lists financial services firms that are authorised by the it, and if a firm does not appear on the register but claims it does, contact the consumer helpline. Access the register from the FCA website rather than through links in e-mails or on the website of a firm offering an investment. But probably the best advice of all is – shop around and, whatever you do, avoid unwanted sales calls!

• Richard Godden is a partner with Blackadders.