The Pension Scheme Bill 2019/20 is set for its second reading in the House of Lords and is nearing Royal Accent.
The new defined benefit pension transfer rules in the Pension Bill have been introduced to protect consumers from being scammed out of their pension pots. The new rules will require defined benefit pension scheme trustees to check the new receiving pension scheme is regulated by the Financial Conduct Authority, or has an active employment link with the individual, or is an authorised master trust.
The Pensions Regulator estimates there has been over 160,000 defined benefit pension transfers since 2016, with many consumers transferring their pension pots into high risk unregulated schemes. The FCA believes that over 80% of pension advisers provided bad advice. There are now calls from experts and MP’s for the FCA to launch an enquiry into the defined benefit pension transfer market, believed to be worth £80bn.
Defined benefit pension transfer mis-selling scandal
There are now real concerns that there will be a defined benefit pension transfer mis-selling scandal. A recent freedom of information request revealed the FCA are writing to 1,841 defined benefit transfer advisers about the “potential harm” their advice has caused. This represented 76% of the 2,426 firms who provided defined benefit pension transfer advice between 2015 and 2018.
Defined benefit pension transfer advice boomed in 2015 when the then Chancellor of the Exchequer, George Osborne, introduced sweeping reforms to Pension rules, know as Pension Freedom. The new Pension Freedom rules made it more attractive for consumers to cash in a pension early, taking advantage of receiving a 25% tax free lump sum. By law, anyone who has a pension pot worth more than £30,000 must take defined benefit pension advice from a FCA regulated firm before making a decision to transfer out of the scheme.
The new Pension Freedoms also created a boom in bad advice, with many consumers being left worse off in retirement. The British Steel pension fiasco is a prime example of this.
How to protect yourself from bad defined benefit pension advice
As a FCA regulated adviser, Grove Pension Solutions have been providing defined benefit pension advice since 2007 and has a wealth of knowledge and expertise in providing pension transfer advice. If you are considering transferring your defined benefit pension we have produced a handy guide on how to avoid a pension transfer scam. The main points are:
- Check that the firm you are taking advice from is FCA regulated. You can easily look them up on the FCA register
- Check how long they have been doing this for and ask what experience they have. Again, the FCA register will tell you their Status Effective Date
- Make sure the advice you receive is provided in writing and you are given time to digest that information, without being rushed or pressurised into making a rash decision
- Make sure you understand what you are doing and have been told about the downsides as well as the benefits – don’t be afraid to ask questions if you don’t understand. Even get a trusted friend or family member to look at the advice as well
- And be careful, if the investment advice sounds too good to be true, it probably isn’t true. Only invest in FCA regulated investments
Further information and reading
Parliament: Pension Scheme Bill 2019/20
The Pension Regulator: Regulations Defined Benefit to Defined Contribution transfers
The Pension Regulator: How to avoid pension scams
Government Money Advice Service: Defined benefit pension schemes explained
FT Adviser: FCA urged to probe pension transfer advice
Grove Pension Solutions: Defined Benefit Pension Transfer Advice