Pension Freedoms Source of Consumer Harm

The plan confirms in clear terms the FCA’s concerns regarding the suitability of advice in relation to the transfer of defined benefit pensions and the long-term impact this will have for investors:

“…consumer losses from unsuitable investment decisions, or fraud, can be catastrophic…consumers who are scammed lose an average of 22 years’ pensions savings, almost 3 times their annual earnings. At present we see significant risk of harm in these markets, in part driven by the way consumers have been given additional responsibility for complex investment decisions, through the shift to Defined Contribution pensions and the Government’s 2015 pension freedoms.”

Defined benefit (final salary) pension schemes are a very solid and dependable source of income for retirement and there must be an extremely good reason for someone to want to transfer this into a riskier type of investment. Getting the right sort of advice on this is therefore crucial.

Common industries that DB transfers affect include:

• Coal miners
• British Steelworkers
• Railway workers
• British Telecom staff
• NHS
• Dockers
• Local Government
• Civil Service
• Teachers
• Armed forces
• Emergency services

For some time now and echoed in their Business Plan, the FCA has been saying their default position is that it is not often in someone’s best interests to leave a pension scheme that will provide them with a guaranteed and sustainable income when they retire.

In other words, it is unlikely that another scheme would be able to perform so well as to provide a level of income equal to or better than a scheme with a defined level of income on retirement.

Commenting on the FCA’s Business Plan, Peter McKenna, Partner, said:

“Unfortunately the FCA’s report findings do not come as a surprise to us at TLW. We see many clients who have suffered losses into the hundreds of thousands as a result of receiving unsuitable advice to leave their current pension scheme. In the majority of cases there is no good reason for the adviser to recommend the pension transfer and we can only assume that the advice given to our clients has been motived by the adviser’s desire to make a large commission from the pension transfer.”

TLW Solicitors specialise in financial mis-selling compensation claims. We have helped many individuals who received unsuitable financial advice to transfer out of their Defined Benefit Pensions to a riskier investment or less advantageous scheme. The resulting loss to pension value and uncertainty surrounding their financial future can cause investors considerable stress and worry. Many people do not even know there is an issue.