Whose Pension Is It Anyway?


Retirement savers who have spent years pouring cash into their final salary pensions are facing obstacles when trying to move their money.

The catch-22 is financial advisers are refusing to help them make the best choices for their pots, while providers will not accept transfers without a ‘positive’ recommendation from adviser.

With many savers frustrated over what to do, they are right to point out that the money belongs to them and they have a right to say what they do with their pensions.

The root of the problem is fear on the part of financial advisers and pension providers – and the £30,000 rule.

Although FTSE350 firms are offering savers exceptional amounts of money to pay up their pensions to clear their books, not many can take advantage of the terms.

These pay-offs – called cash equivalent transfers – are reportedly between 40 and 50 times the projected final income a final salary pension is expected to pay.

Financial catch-22

A pension paying £10,000 a year could easily come with a £400,000 cash equivalent offer.

But pension rules demand anyone seeking to move a pot of £30,000 or more take financial advice before shifting the cash.

This is where the catch-22 comes into play.

Many financial advisers decline to make a recommendation because they fear a mis-selling claim coming back to bite them.

That’s because giving up a final salary scheme involves cashing in retirement income and other benefit guarantees in favour of another pension that offers no such terms. Their regulator, the Financial Conduct Authority (FCA) takes a view that advice should start at a point that assumes no advantage in swapping between final salary and direct contribution pensions.

Providers sidestep mis-selling concerns by asking for the recommendation, which they know most advisers will not write-off.

An adviser’s view

Writing in trade media Money Marketing, Ian Wilkinson, boss of IFA Rutherford Wilkinson explained why he declines final salary pension clients.

“We took the decision to withdraw from this area of advice for no other reason than we felt it would remove an element of risk from our business that we didn’t feel was necessary to have. Based on the noises from the FCA I believe it could be the next misselling scandal, as the client is giving up a guaranteed income in return for flexibility and death benefits,” he said.

“I have seen some cash equivalent transfer offers that exceed 38 times the deferred pension. They are bound to look attractive to members. However, it is essential that the advice isn’t viewed in isolation – based on a critical yield or multiple of pension – and that it dovetails with the client’s aims and objectives.”

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