The government's new pension freedoms could lead the insurance industry into creating another PPI-style financial scandal.

The warning has come from Portal Financial, which says that the new at-retirement options that will be made available next April will create potential conflicts of interest for pension providers.

According to the advisory firm, providers could be torn between acting solely on their clients’ instructions or recommending independent advice. The former, it says, could result in subsequent claims if savers' actions turn out to have a detrimental effect on their future finances, while the latter would risk them losing business if clients transfer to a more suitable scheme.

It added that clients may also act in haste without necessarily understanding the financial implications of their decisions, such as the fact that if somebody with multiple pensions were to withdrew the smallest one at 55, then they would immediately slash their annual allowance on contributions, leading to a large retrospective tax bill.

“Our concern is that pension providers – typically insurance companies - will act on clients’ instructions without looking at the implications," said Portal Financial managing director Jamie Smith-Thompson.

"We deal with hundreds of people each week who are looking to take money before they retire under the existing regulations and we advise many that it is not in their best interests. We would not expect the situation to change come next April.

"We do not want a repeat of the PPI scandal. As we know, the banks found out to their cost that the interpretation of ‘treating customers fairly’ can be applied retrospectively."

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