MORE than 1,600 financial advice firms may have wrongly told savers to ditch their valuable final salary schemes.
The Financial Conduct Authority (FCA) has contacted more than half of the 2,500 regulated firms offering advice in the so-called “defined benefit” pension market following concerns.
It’s part of a growing effort to crack down on bad advice in the sector, Debbie Gupta, director of life insurance and financial advice at the regulator, said during a pension conference last week.
In June, the regulator warned that it believed some savers were given the wrong advice as transferring out of the gold-plated schemes would not make sense for most people.
It had found that just under 69 per cent of Brits who received advice were recommended to transfer out of the scheme even though it was unlikely to be suitable for them.
The FCA added that “too much of the advice” on defined benefit transfers it had seen was “still not of an acceptable standard”.
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- Understand where you start: Before you consider your plans for tomorrow, you’ll need to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive.
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- Track down your pensions: If you’ve moved jobs a lot, this means you’ll have several pension pots. It can be hard to keep track of them all, but the government offers a free pension tracing service to help you.
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A defined benefit pension scheme is an amount your employer guarantees you when you retire, based on how much you earn and how long you’ve worked at the company.
It generally rises with inflation and pays attractive death benefits, such as a pension to your surviving partner.
But since former chancellor George Osborne’s “pension freedom” reforms in 2015, savers are able to access these pots from the age of 55.
This has led to a rush in transfers for cash or to other pension schemes, even though the FCA said it’s “one of the most complex financial decisions” a consumer may have to make.
Due to legislation, every pension pot transfer of more than £30,000 must be signed off by an adviser.
Unlike modern “defined contribution” schemes, with final salary schemes the employer takes the risk that the value of the investment might fall.
Transferring out means the saver takes on this risk, which the FCA reckons isn’t appropriate in the majority of cases.
Savers transferred £34billion out of 200,000 pots last year and the regulator estimates that unsuitable transfers have cost consumers as much as £2billion a year.
Steve Webb, director of policy at Royal London told The Sun: “Deciding whether or not to transfer out of a final salary pension is a big decision and members need high quality impartial advice.
“Whilst many advisers do a good job, it is worrying that the FCA has written to so many firms to tell them to change the way they advise on transfers.
“In some cases these will be relatively minor changes, but some advice firms have clearly not been doing enough to give members the tailored, impartial advice that they need before making such a big decision.”
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