Transferred out of a final salary pension? You wouldn’t be alone if you did. The number of people making final salary transfers has been generally on the rise.
But the question is, are you one of the ones that received the right advice? Or have you been left with a situation where you may want to make a final salary pension transfer claim?
What is a final salary pension?
Once regularly on offer from many UK employers, final salary pensions schemes are now considered rare, and come with a number of valuable benefits that often can’t be replaced once you transfer away.
They offer scheme members a practically guaranteed income in retirement, one that is index linked to help keep place with inflation, and don’t cost members anything to run – everything is handled by the scheme’s trustees.
So why would anybody transfer away to a personal scheme?
Certainty to Uncertainty
Not all advice to transfer a final salary pension has been the right advice. For some people, mainly those who are unmarried, have no children, or have a shortened life expectancy, and can run the risks of the market by transferring away, the choice may have been the right one.
But it’s estimated that many people will have been told to make a bad decision over their transfer, and there are a number of reasons for it. Some of these reasons may have sounded good at the time, while not everyone may have been aware of the others.
Fear over loss of pension
In some cases, some employers have begun closing their final salary pension schemes due to deficits. This may have given some financial advisers what they felt was an opportunity – a feeling of fear around the pension scheme they could potentially exploit.
When the British Steel Pension Scheme was being shaken up, some financial advisers were accused of using “fear tactics” in order to get people to transfer, earning some of those advisers some big fees in the process. Some advisers have now lost their authorisation to give pension advice due to their conduct during this time.
High Transfer Values
A transfer value is the cash equivalent the scheme operators will give you to cash in your pension and transfer it away. In some cases, these values have reached historical highs as scheme operators wish to have less people in the scheme due to costs. These high transfer values make it seem like cashing in and moving away is a good move, but because the pension was guaranteed until death, people may lose out in the long run.
Not only do many advisers charge thousands to move somebody’s final salary pension, but they may be able to earn extra commission by transferring it to certain schemes, or even high-risk investments. In some cases, people have moved their final salary pensions into SIPP pensions and made high-risk investments in things like overseas property, forestry schemes and other non-FCA regulated products that have lost them money. Sometimes, entire pensions worth hundreds and thousands have been lost because a final salary pension transfer exposed that money to too much risk.
Claims on the rise?
Many industry commentators now believe that Final Salary Transfer claims – that is, claims for bad advice leading to a transfer, may soon be on the rise.
The Pensions Regulator said that there were around 72,000 transfers away from Defined Benefits schemes between 1 April 2017 and 31 March 2018, with figures from the Office for National Statistics indicating that the total value may be around £34.2 billion, far exceeding 2016’s £12.8bn.
With the watchdogs at the FCA telling advisers to start from the assumption that a transfer away from a final salary scheme is the wrong decision, many believe that the rise in transfers may create a rise in claims as time goes by.
Tom Iveson works for claims specialists Get Claims Advice and often writes about mis-sold pensions and SIPP. Check out his blog on final salary transfer claims.