Savers are being thwarted from cashing in their “final salary”-style pensions because financial advisers are refusing to work with them over fears of compensation claims.
Millions of people with final salary pensions, where income is based on salary and length of service, have the right to move their savings into other pension arrangements.
Thousands have chosen to do this because, while the schemes offer guaranteed, inflation-linked income paid by their former employers, they do not allow lump sum withdrawals and are less tax efficient on death. The terms that savers are offered are often very generous.
It is not unusual to be offered a “cash equivalent transfer value” of 40 or 45 times the projected annual income that a final salary pension would pay. So £6,000 of annual income could become £250,000 once moved into a personal pension.
Under rules set down by the City watchdog, financial advice must be sought before the pension can be moved if the transfer value is £30,000 or more. Charges vary, but are typically thousands of pounds.
For me, it’s about control. If I pop my clogs tomorrow, my two boys will get nothing
However, savers are finding that firms are wary of advising them if they suspect they will not be able to recommend a move. At the same time, the path is blocked by personal pension providers that will refuse to accept a transfer from a final salary scheme without a “positive recommendation”.
The industry calls people who want to move their pension against the wishes of an adviser “insistent clients”. Advisers say they won’t help this group quit final salary pensions when they don’t think it’s the right thing to do.
Many cite the “pension review” of the Eighties and Nineties, which led to billions of pounds being paid in compensation after advisers were judged to have wrongly recommended people to give up company schemes for personal pensions.
As a result, dozens of Telegraph Money readers are being prevented from taking control of their money. Transfer values are unusually high at the moment and there are fears that the delay in finding advisers and firms willing to help will mean savers lose out.
Richard Austin, 65, said the “crazy” regulations had left him feeling like his future is “in the lap of the gods”. He retired last summer and now lives on a canal boat. Mr Austin said his state pension covered his modest costs.
But after months of phone calls and emails he has not found an adviser willing to speak to him about transferring two final salary pensions he has with a former employer. Combined, they would pay around £5,000 a year, or give him a lump sum of £100,000 if moved into a personal pension.
He has other savings and will continue to work part-time but said he didn’t feel that advisers were taking his circumstances into account.
“Every financial adviser has told me it’s going to be a no. They won’t touch it,” he said.
“For me, it’s about control. If I pop my clogs tomorrow, my two boys will get nothing. If I can transfer it into a personal pension, at least they’ll get what I leave behind.
“I know at the moment the income is guaranteed and I’m quite prepared to give up that guarantee to get more control. It is my money at the end of the day.”
Members of final salary schemes can receive a transfer value free of charge once a year. But the offers are only guaranteed for three months, meaning that savers have to pay for new valuations if they can’t arrange a transfer quickly enough.
That is what happened to Mr Austin while he was searching for an adviser.
His transfer value expired and his scheme is asking for around £800 to produce new valuations for his two pensions. Other readers have reported similar problems.
David Rowe, a 55-year-old engineer, wants to transfer three final salary pensions but found that the advisers he spoke to “weren’t interested unless I let them manage my money afterwards”.
A seasoned investor with around £250,000 in a Hargreaves Lansdown stocks and shares Isa, he has become frustrated with the time it has taken to move his pension.
For one of my pensions the offer fell from £67,000 to £60,000 in three months – it’s putting me under a lot of stress
“I’m retired now and want to spend more time doing what I enjoy, dancing and rock climbing,” he said.
“For one of my pensions the offer fell from £67,000 to £60,000 in three months – it’s putting me under a lot of stress.”
Combined, his pensions would pay £12,000 annually or £500,000 if transferred. Hargreaves Lansdown, Britain’s biggest broker, said it would not accept a transfer from a final salary scheme unless an adviser recommended the move.
However, AJ Bell, a rival, confirmed that it would accept transfers irrespective of the adviser’s recommendation. Prudential and Aviva said they had no way to know whether an adviser had made a positive or negative recommendation.
Fiona Tait of Intelligent Pensions, a firm of advisers specialising in pension transfers, said her company would not facilitate a transfer unless it judged it to be the right thing to do.
She said: “If advisers are saying no, they are professionals and they will be coming to that conclusion for very good reasons. Those reasons will be all to do with protecting the consumer.”
The firm charges £1,200 for a report, plus 1pc of the pension being moved, reducing on a sliding scale for sums of more than £500,000.