One in five retirees has considered riskier pensions and investment products in the search for higher rates of interest, a survey has found.
Some 20% of retired people aged 55 to 75 said they had thought about such schemes, the Financial Services Compensation Scheme (FSCS) found.
The scheme said it is seeing increasing numbers of customers seeking compensation due to failed pension and investment products, or poor advice.
The FSCS, which acts as a safety net for savers if their bank goes bust, said the prolonged low interest rate environment has made it more tempting for retirees to review high-interest investment products that they would not usually consider.
People tempted by offers of high returns could end up losing life-changing sums of money if the provider fails or investments do not perform as expected.
Many investment scams have also appeared during the coronavirus pandemic.
People can check the Financial Conduct Authority (FCA) website to make sure that a firm is authorised.
Only one in eight (12%) retirees said they had taken advice from an Independent Financial Adviser (IFA) to see how they could make their money go further.
More than a third (36%) of people had invested their money after retiring, the survey found.
Although the majority (69%) of those investing said they knew all their investments were FSCS-protected, only 36% of investors knew the exact amount of FSCS protection available for their money. This means they could unknowingly be investing money in products beyond FSCS’s compensation limit, which would likely be lost if the provider went out of business.
In general, if someone holds money with a UK-authorised bank, building society or credit union that fails, the FSCS will compensate them by up to £85,000 per person.
The FSCS, which is funded by the financial services industry, has a protection checker on its website at www.fscs.org.uk/check-your-money-is-protected.
If a pension provider or financial adviser goes out of business, the FSCS may also be able to step in and pay compensation. But FSCS protection varies depending on the type of pension product, and there are also limits to the amounts it can compensate.
It has a pension protection checker tool at www.fscs.org.uk/pension-protection-checker.
Caroline Rainbird, CEO of the FSCS, said: “We are seeing increasing numbers of customers seeking compensation from FSCS due to failed pension and investment products, or poor advice.
“The real danger is that if consumers choose to put money into high interest pension and investment products that are not FSCS-protected, they could lose life-changing sums of money from their retirement pots if the product provider fails.
“For peace of mind, consumers should always check that new or existing pensions and investments products are FSCS-protected. Our website, www.fscs.org.uk, offers guidance on how to check for FSCS protection, including our new pension protection checker tool and investment protection explainer video.”
Some 2,000 retirees aged 55 to 75 were surveyed in February.
Phil Brown, director of policy at B&CE, provider of the People’s Pension, said: “The findings by the FSCS are to be welcomed as this work shines more light on a very real issue.
“Our own recent new choices, big decisions research revealed that since the introduction of Pension Freedoms in 2015, retirement savers have been faced with a new set of decisions that many are simply not equipped to deal with.
“The average saver does not understand investment risk or the fact that they could easily run out of savings before they die if they don’t plan well enough, or don’t seek expert advice or guidance.
“It’s down to policy makers and the pensions industry to come up with a solution which helps the average person navigate the choppy waters of pre-retirement decision making.”
Jamie Jenkins, head of policy and external affairs at Royal London said: “Any investment opportunity promising unusually high rates of return is almost certainly unregulated, high risk or illegal.
“In almost all cases, this will be inappropriate for people’s retirement funds.”
Andrew Tully, technical director at Canada Life said: “People might be tempted to chase higher returns because we continue to endure historical low savings rates, but care needs to be taken as there is no such thing as making a quick buck when it comes to retirement.
“There are different degrees of risk and people need to consider what level they are comfortable with to try and achieve their goals. For most that means exposure to a broad range of assets to diversify the risk, rather than putting all their eggs in one basket.
“People also need to take care as pension scams are on the rise with at least £1.8 million lost to scams this year already.
“Follow the simple rule of thumb, if it appears too good to be true, it inevitably is.
“Simply walk away, hang up, or delete the email or text.”
A Department for Work and Pensions spokesman said: “This Government is committed to ensuring that people have the support and information they need to make informed choices about their financial futures.
“The stronger nudge proposals will ensure providers present guidance as a normal part of accessing your pension, and they will book a Pension Wise appointment for the individual unless they wish to opt out of receiving guidance.
“In addition, new powers currently going through Parliament will help to protect savers by empowering trustees to take action where they suspect scam activity.”