Defined benefit, or final salary pension transfers are among the most lucrative financial services that an independent financial advisor (IFA) or pension provider can manage. A typical pension scheme involves employees and/or employers contributing set percentages of a wage into a pension scheme per month until retirement. The pension firm responsible for the pot will invest that money in a pre-determined portfolio, and the value of the customer’s retirement savings will fluctuate based on the investment’s market performance. A final salary pension foregoes this element of uncertainty by providing a pension holder with a guaranteed wage relative to their final salary at the time of retirement.
When the pensions freedoms were established in 2015, it removed the minimum income required to achieve full control of a pension pot and enabled anyone to cash in on their retirement savings by transferring into self-invested personal pensions (SIPP) with typically high cash-equivalent transfer values (CETV). Owing to the rarity and high-value nature of defined benefit schemes, final salary pension transfers were attractive to customers, IFAs, and SIPP providers alike.
Final Salary Pension Transfer Slowdown
Final salary pension transfer activity increased dramatically in the following years, equating to billions of pounds worth of activity every year. Before the pensions freedoms was introduced, pension transfer movement was valued at below £2 billion per annum. Over five times that amount has been transferred between pension schemes in the first quarter of 2018 alone.
This activity is unfortunately associated with negligence and financial mis-selling, with a slew of high-profile cases where customers were encouraged to transfer out of defined benefit pension schemes to fund nonstandard investments in a self-invested plan. Final salary pension transfers of this manner have repeatedly hit headlines in the mainstream media, particularly in relation to Tata Steel UK and the British Steel Pension Scheme. These cases have resulted in numerous final salary pension transfer compensation claims that have directly influenced the collapse of multiple IFAs, and forced the Financial Conduct Authority (FCA) to alter the permissions of many regulated companies and encourage companies to cease final salary pension transfer activity altogether.
Industry experts currently expect final salary pension transfer to peak and inevitably drop-off. Tom Selby at Money Marketing recently claimed:
“It is possible we are somewhere near the peak of DB transfer activity. Many advisers are understandably reticent about acting as the last line of defence, fearful they’ll be on the hook for complaints long into the future if a transfer goes wrong.
Furthermore, the FCA continues to scrutinise the market closely – particularly in the wake of the scandal that recently engulfed the British Steel scheme.”
Final Salary Pension Transfer Claims with Money and Me Claims
At Money and Me Claims, we regularly monitor the financial landscape to ensure that our readers are equipped with the latest industry information and understand when and where they may be due compensation.
Find out more about final salary pension transfer claims, or contact us if you would like any more information.