The practice of retirees selling their pensions for a lump sum has drawn U.S. regulators' attention, with two government watchdogs this month warning consumers about some of the firms that engage in the practice.
"We're very concerned about the long-term detrimental effects of these pension sales," said Lori Schock, director of investor education at the Securities and Exchange Commission.
"While there are some legitimate firms, there are plenty that are not, and it's a challenge for us as regulators to keep track of them," Schock said. "Some of these are scams."
Analysts say there are no definitive numbers on how many people are selling their pensions for cashs, but Schock said that an increase in consumer complaints, as well as recent media attention, prompted the SEC and the Financial Industry Regulatory Authority (FINRA) to issue a warning over pension sales earlier this month.
The alert said that pensioners should think twice before cash-up-front deals—cautioning that sellers may not be aware of hidden costs. The agencies also warned that investors who put up the money through pension-buying organizations in order to make the acquisitions may not see the returns promised to them.
"We usually get concerned on the investor side of issues," said Schock. "But we're also worried about those who sell their pensions and what this does to them."
"We look at these loans as fairly fraudulent and predatory," said Nancy Hwa, a spokesperson for the Pension Rights Center, a nonprofit consumer advocacy organization.
"This is a fairly new situation in the number of pensioners selling, and we're worried that when they become strapped for cash they will sell their pensions," added Hwa. "We don't think it's a good idea."