Transferred out of the British Steel Pension Scheme (BSPS)?
If so, you could be one of the 7700 steelworkers recently contacted by the FCA (Financial Conduct Authority). As part of an ongoing review into final salary pension transfers, 192 cases from 2017 were considered – and almost half contained evidence of unsuitable advice. As a result, the FCA has encouraged all those affected to make a claim and try to mitigate their losses.
Unfortunately, this isn’t just an issue for steelworkers. Lots of public sectors and nationalised industries have been affected by poor transfer advice – and, as such, could be eligible for compensation. The truth is; moving out of a final salary pension is very rarely a good idea. Here we take a look at some of the reasons why and explore the main benefits of this type of scheme.
5 benefits of a final salary pension scheme
1. Guaranteed income
The exact income you will get from a final salary pension depends on:
- your salary when you retire
- how long you worked for the company
But whatever the amount, it will be paid to you – every single year without fail – until the day you die. That’s why they’re often called a defined benefit (DB) pension. You know exactly what you’re getting on an annual basis. And, unlike many other types of pension scheme (e.g. a defined contribution pension), it is a guaranteed and reliable source of income.
All final salary pension schemes are index-linked. This means, every 12 months, your pension income will rise in line with inflation. For some schemes, this rise is capped at 2.5% a year. For others, it’s linked to the Retail Price Index. But either way, it will ensure that as time passes by – and the cost of living increases – you can still afford and enjoy the same quality of life.
3. No risk
Rather than having to choose investments yourself or seek the help of an independent financial adviser, all investment decisions are made by the scheme’s trustees.
These trustees will have significant experience in the investment management industry and will work together to come up with the best strategy. But even if the investments are unsuccessful, this isn’t your problem. No matter what happens, you will still receive your guaranteed yearly income.
4. Low cost
Defined contribution pensions come with a range of charges, including annual management and administration costs, platform fees, contribution charges and more. These can often be expensive and – coupled with the cost of a financial adviser – can quickly eat away at your pension pot.
By contrast, most defined benefit pension schemes will have very low charges. Some don’t cost a penny, which means there’s no need to worry about depleting your savings in this way.
5. Dependant protection
If you die in service or retirement, your dependants will be protected. This could be your widow or civil partner, a child under the age of 23, or a child of any age with a physical or mental impairment.
The exact amount received would depend on when you die and the specific final salary pension scheme you’re in. However, in most cases, beneficiaries are given either 50% of the original amount as a regular income or a lump sum – that is calculated based on your final salary at the firm.
Wrongly advised regarding a DB pension?
If you’re one of the 7700 steelworkers contacted by the FCA, or suspect that you too have been misadvised about a defined benefit pension, there are a number of options available to you.
Claims can be made for free to the Financial Ombudsman, the Pensions Ombudsman, or the Financial Services Compensation Scheme (FSCS). They can also be made directly to the person to whom your claim relates or, if you have it, via your personal insurance for mis-selling.
Another option is to contact a claims management company, such as Money and Me Claims. In-house, we have a team of pension specialists with excellent knowledge of final salary pension schemes and their benefits. By applying our expertise, we can advise on your eligibility to claim, take care of the entire claims process and do everything possible to help mitigate any losses.