How Can You Tell If You Were Mis-Sold Your Final Salary Pension Transfer?

Pension Mis-Selling On The Rise

Pension mis-selling is in the news more and more as the British public gets its head around the huge numbers of people who have been persuaded to transfer their valuable final salary and other defined benefits pensions, often leaving them worse off for retirement.

Its worth noting that there ARE some valid reasons and circumstances that may have made transferring one of these valuable pensions a worthy idea.

But for the vast majority of people with active of deferred defined benefits pensions, the decision to move may have been fraught with unknown risk and the loss of a valuable guaranteed income in retirement.

So how can somebody find out if they were mis-sold their Final Salary pension transfer?

We’re specialists in mis-sold pension claims, and while there are plenty of reasons why people may have been mis-sold making them eligible to make a claim, here are some of the most common:

1. You’ve Lost Money For Retirement In An Obvious Way

While your defined benefits pensions will likely have promised a guaranteed income for life, protected up to 90% by the Pension Protection Fund, its unlikely that any personal pension would do the same. Once moved into a private pension and invested, the amount you get in retirement will depend on how well your investments go.

Not only do some investments fluctuate in value and returns on a daily, monthly or quarterly basis, but big events such as the 2008 financial crash, the Iraq war (and possibly even Brexit) can make or break an investment. In some cases, people are persuaded to transfer and make high-risk investments through SIPPs, SSASs or QROPS, that they aren’t suitable for.

Sometimes, this can cause a pension fund worth hundreds of thousands of pounds to become worthless practically overnight. Transfers away from final salary pension schemes almost always carry an increased (and usually unacceptable) amount of risk. If you’ve lost money you can’t afford to lose because of a transfer, this could be a sign you were mis-sold.

2. New Pensions Isn’t Beating The Critical Yield

Your ‘Critical Yield’ is the percentage by which your new pension needs to grow by each year to be worth the same as your old defined benefits pension if you never transferred it. Because Critical Yields for transfers away from DB schemes are often high (these are valuable pensions after all), your new pension might have to work pretty hard to keep pace and even beat your old pension.

But higher investment returns often mean higher risks to get them. This means that to make money, it often means transferring a safe and already valuable pension to a place where risks must be taken just to achieve the same results.

Think about what we said in point one: the success of your investments is what grows your pension, and this can fluctuate, especially if the investments are in a higher risk category. Will your new pension match or beat your critical yield, year on year until you retire? Was it worth the risk?

3. You Were Married And In Good Health

If you were persuaded to move, but are married in good health, you may have lost some important benefits. Married? Final salary pension schemes offer Death In Service benefits, which mean if you were to die before drawing in your pension (due to an accident for example, or something unforeseeable), your spouse would be entitled to up to 50% of the pension. Dependent children too also often have benefits.

On the other end of the scale, if you have health issues that mean you may have reduced life expectancy, a move may have been a good idea (a steady income for life may be of less value if you aren’t here for long).

But if you are in good health and expect to live a long time into retirement, the guaranteed nature of a final salary pension means you can look forward to a steady income for life.

4. Transfer Fees, Charges And Commission

One thing financial advisers may gloss over is the fact that final salary schemes are operated free-of-charge for members. But transferring away can incur thousands in advice and transfer fees, and in most cases, the new pension company will charge annual fees, all to have your money likely put at more risk than it was in the original pension.

In more sinister cases, financial advisers and marketing companies may be receiving commission to drive money towards high-risk investments too, meaning that the advice received is money-motivated rather than unbiased and in the client’s best interests. Were you made aware of any fees and charges that may effect how long it takes to recover from the transfer itself? How will the charges effect your pension growth? Were you made aware of any potentially unfair relationships between the companies involved?

5. Fear Tactics And High-Pressure Selling

When articles and rumours about the state of a defined benefit start circling, some advisers may insinuate that a scheme is unsafe.

In fact, all defined benefits pension schemes are protected by the PPF to up 90%, and transferring out could mean considerably bigger risks to a retirement.

But driven by negligence and a hunger for big transfer fees, some advisers and marketing firms may use fear tactics, as well as high-pressure sales techniques.

Some avenues, such as cold-calling people about their pensions, have now been banned.

Did you transfer after a cold-call, or did they downplay the benefits of your old final salary pension?

If so, you may have been victim of final salary pension mis-selling.