Poor pension transfer advice
Today, most pension plans are “defined contribution” schemes, such as personal pension schemes or stakeholder schemes. A person contributes to the pension fund over their working life and that fund is invested on behalf of the members of the scheme.
The level of income that will be produced at retirement will be based on how the pension fund has been invested and grown over time. This is dependant on the market and the assets in which the pension fund was invested, which of course can go down as well as up.
Some are fortunate to be members of defined benefit pension schemes. Defined benefit schemes (such as final salary occupational schemes) are the gold standard pension schemes that are now virtually unobtainable in the private sector. They offer guaranteed pension benefits at retirement meaning the pension income that will be provided is not subject to market risk.. Defined benefit schemes not only pay a guaranteed pension, based on earnings, but usually raise payments each year in line with inflation and pay a pension to a surviving spouse.
Transferring out of a defined benefit pension scheme and into a defined contribution scheme is a risky move because there is a significant risk that the pension fund will not grow to a sufficient size at retirement to replicate the benefits that were already guaranteed in the defined benefit scheme. Once a transfer has taken place, those guaranteed benefits are lost.
It is therefore surprising that a sizeable percentage of consumers have been advised to switch their pensions from defined benefit schemes to riskier stock-market-based plans. Such switches are unlikely to be the consumer’s interest in the vast majority of cases.
Unfortunately, in recent years there have been several widespread examples of clients losing significant sums of money in pensions recommended by their advisers. It is all the more distressing when those individuals had guaranteed benefits that have now been lost.
At Cripps, we have a market leading, specialist financial services professional negligence team dedicated to assisting businesses and individuals who have suffered loss as a consequence of being mis-sold inappropriate and complicated pension investments.
Our solicitors have an in-depth knowledge of the regulatory background and the legal dispute resolution expertise to obtain swift redress.