Was my final salary pension transfer mis-sold?

Over £100 billion has been transferred out of final salary pension schemes in the last eight years!

Since 2015, approximately 540,000 people have transferred out of a final salary, or defined benefits (DB), pension and into a different pension scheme, like a defined contribution (DC) pension or self-invested personal pension (SIPP).

Pension transfers were initially hugely popular between 2015 and 2018 after then Chancellor George Osborne’s 2014 pension reforms made them much easier to undertake.

The value of transferred pensions per year grew almost seven-fold during this time, peaking at £37 billion in 2018.

Soon after the explosion in the popularity of final salary pension transfers, various individuals, consumer groups and regulators, including the Financial Conduct Authority (FCA), raised concerns about mis-selling. Some estimates put the value of mis-sold pension transfers in the tens of billions!

While final salary pension transfers remain widely available today, there are several safeguards in place that aim to reduce instances of mis-selling. For example, legislation introduced in November 2021 gives pension trustees the power to block a transfer in the presence of red or amber flags. In addition, there is a continually growing raft of resources designed to help people understand the warning signs of pension scams.

In this guide, we’re going to explore:

  • The background to what has been called a “major mis-selling scandal”.
  • What you can do to identify if an adviser or pension provider mis-sold your final salary pension transfer.
  • What you can do to claim back any pension mis-selling compensation you deserve.

Was my final salary pension transfer mis-sold?

One of the most significant problems with financial mis-selling generally, not just with final salary pension transfers, is that you often won’t know you’ve been mis-sold.

Many people don’t realise they’ve been mis-sold because they rarely check their pension fund and assume it’ll be ready for them when needed. Others were mis-sold a final salary pension transfer into “fixed-term investments” and only learned they’d been mis-sold and that their money was gone when the “investment” was due to mature. Some people are even in the final days and weeks before their retirement before they learn their pension fund has gone. There will also still be people now who were mis-sold a final salary pension transfer and may not realise it for years.

That might be part of the reason you’re here.

If you have any concerns or worries that you may have been mis-sold, you can get in touch with us for a free, no-obligation review of your final salary pension transfer and advice. You have nothing to lose and potentially tens of thousands of pounds to gain.

How big is the final salary pension transfer mis-selling scandal?

Since the most significant concerns about potential final salary pension transfer mis-selling came to light in 2018, the FCA has taken many steps to reform the pension transfer industry. In addition to tightening rules around pension transfers, the regulator has repeatedly warned that a significant portion of pension transfer advice was unsuitable or not of an acceptable standard.

But no one really knows the accurate scale of final salary pension transfer mis-selling. And it seems highly unlikely anyone will ever be able to put a definitive number on the value of mis-sold transfers and subsequent compensation awards.

However, the data that is available helps to paint a stark picture:

  • 234,951 people sought final salary pension transfer advice between April 2015 and September 2018.
  • In 69% of cases, a financial adviser recommended transferring out of a final salary pension.
  • 50,000 final salary pension transfers still take place every year.

How many firms received regulator warnings about their pension transfer advice?

A 2019 Freedom of Information request by the Financial Times revealed the extent of potential mis-selling by financial advisers:

  • 2,426 UK advisers sold final salary pension transfer advice from April 2015 to September 2018.
  • The FCA wrote to 1,841 firms about “potential harm” in their pension transfer advice.
  • An FCA review of 154 specific cases found less than 50% of pension transfer advice was suitable or correct in the client’s circumstances.
  • Regulatory intervention occurred, or enforcement action was considered against nearly 200 firms.

Due to the fallout from the final salary pension mis-selling scandal, the number of financial advisers offering DB pension transfer advice has fallen by 60% since 2018.

What is the FCA’s position on final salary pension transfers?

The FCA says that a financial adviser’s default position when advising clients should be that a final salary pension transfer isn’t suitable, except under very limited circumstances, including:

  • The client is in significant and immediate debt.
  • The client had a significantly shortened life expectancy due to a severe health condition.

Given this guidance from the regulator, it is unsurprising that 69% of people being recommended to transfer would set alarm bells ringing.

Why are financial advisers even involved in final salary pension transfers?

Final salary pension transfer rules say if you want to cash in a pension with a value exceeding £30,000, you must obtain independent financial advice from a regulated pension transfer specialist.

As such, you couldn’t transfer your pension without assistance, even if you did extensive research yourself before doing so.

So why were so many people advised to transfer their final salary pension?

Among the FCA’s numerous reviews, one of the most significant shortcomings in the processes undertaken and advice provided was that advisers only received a fee if a pension transfer occurred. This was known as contingent charging.

As such, the FCA’s concern was that advisers were recommending pension transfers irrespective of whether it was suitable for their client because otherwise, they wouldn’t get paid. Unsurprisingly, advisers offering schemes and offers like “no transfer, no fee” quickly came under the spotlight.

In July 2019, the FCA launched a consultation on banning contingent charging, saying at the time, “We are concerned too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated. In particular, the practice of contingent charging creates an obvious conflict.”

October 2020’s contingent charging ban

The FCA banned contingent charging for pension transfers from 1st October 2020.

Announcing the ban in June 2020, the FCA said, “In our view, given the advantages of DB pensions, the proportion of consumers that firms have advised to transfer is too high.

“While a large proportion of the advice to transfer will have been suitable, our file reviews also show too many instances where transfers were not in consumers’ best interests. We also know consumers are paying high charges. A fee of close to £10,000 for advice on an average transfer value is not unusual.”

The FCA also disclosed it had sought discussions with HM Treasury on at least seven occasions during the year-long consultation.

Critics of the ban agreed that contingent charging led to a conflict of interest for advisers but believed it was bad for consumers and would reduce access to advice.

As we saw earlier, the number of advisers offering DB pension transfer advice has fallen by 60% since 2018. However, this isn’t purely down to the contingent charging ban. Instead, many firms have stopped offering pension transfer advice due to massive increases in their professional indemnity insurance (PII) premiums. PII premiums increased due to the pension transfer mis-selling scandal and the scale at which compensation has been paid.

While the contingent charging ban, fewer advisers in the market, and better awareness around pension scams may have reduced the scale of pension transfer mis-selling in the here and now, that’s scant consolation if you’ve already transferred and are consequently worse off.

Thankfully, you can complain and potentially receive pension transfer mis-selling compensation, even if your adviser is no longer trading.

Now that we know about the background of final salary pension transfers and mis-selling, let’s explore how you can understand if you may have been mis-sold.

Did you receive final salary pension transfer advice?

If you transferred out of a final salary pension worth over £30,000, you would have received advice before doing so, as this is a legal requirement. However, you may have received advice even if your pension was worth less than this and could still be entitled to compensation.

How much pension mis-selling compensation can I claim?

This depends on the circumstances behind your transfer.

As of May 2023, depending on when you received final salary pension transfer advice:

  • The Financial Ombudsman Service (FOS) can award up to £375,000 against your adviser.
  • The Financial Services Compensation Scheme (FSCS) can award up to £85,000 if your adviser is no longer in business.

It is possible your adviser could repay more than the FOS figure. However, if they owe you more than the FOS compensation cap, they’re likelier to allow the FOS to deal with your claim as, ultimately, it will cost them less.

Unsurprisingly, firms involved in final salary pension transfer mis-selling have been in no rush to disclose how much they’ve paid against mis-sold pension claims or how many complaints have been made against them. This information often becomes available only when the FSCS declares an adviser in default and states the volume of claims it faces.

The FSCS, an industry lifeboat fund that collects its monies via a levy against FCA and Prudential Regulation Authority (PRA) authorised businesses, does disclose how much pension mis-selling compensation annually.

Between 2016 and 2018, the FSCS paid out between £20 million and £40 million a year. While these are colossal figures, they pale in comparison to the sums paid in the last three years, which are between £75 million and £120 million. The consistent escalation in these figures proves the extent to which final salary pension transfer mis-selling took place, but also that many instances of mis-selling are still coming to light.

How does making a pension transfer mis-selling claim work?

When you bring a claim for pension transfer mis-selling, the entity that deals with your claim, which could be your solicitor or pension mis-selling specialist, the FOS or the FSCS, will consider several factors, which we cover below.

Critical yield

This is the extent to which the pension you transferred into needs to grow to match your DB pension. The DB pension you transferred out of offered you a guaranteed income during your retirement, so your new pension is reliant on growth to match or beat this figure. The greater the extent to which your new pension leaves you worse off, the more significant a sum you might be able to claim.

As well as considering your regular income from your pension, this stage will also consider things like lost benefits and the negative impact of taking a lump sum from your pension during your transfer.

Your risk appetite

Transferring out of a final salary pension can be risky. After all, you’re swapping a guaranteed income for a potentially volatile one, depending on where you subsequently invested. You may have been advised to transfer into a higher-risk pension but were not made fully aware of the risks of transferring.

If your adviser correctly explained your final salary pension transfer

If your financial adviser didn’t fully inform you of the pros and cons of a final salary pension compared to the pension you transferred into, this might enhance your claim.

If the DB pension you transferred out of was your only pension

This can increase the risk you face and, if your final salary pension was your only pension, may make it more likely your pension transfer was mis-sold.

How your final salary pension transfer impacted your retirement prospects

A mis-sold pension transfer might cost you a few thousand pounds but could, in worst-case scenarios, cost you your entire pension pot. We’ll assess the impact of your transfer across many factors, including how it will influence your retirement plans and how much cash you lost due to financial adviser fees. Depending on where you transferred your pension, you may also be liable for further charges for investment advice, potentially further reducing your pension pot.

While most pension mis-selling claims and compensation awards are determined based on financial loss, you can still make a complaint and a claim for receiving bad advice even if your transfer hasn’t left you immediately or obviously worse off.

How long does it take to make a pension mis-selling claim?

The time between bringing your claim and receiving your pension mis-selling compensation can depend on several factors, including the cooperation and responsiveness of the firm you’re claiming against and the volume of claims the FSCS is dealing with.

While all pension claims are different, as a general guideline:

  • Claims to the FSCS can take six to 12 months to process.
  • Claims that go to the FOS can take between 12 and 18 months to process.

So how do I know if my pension transfer was mis-sold?

One of the most significant problems around financial mis-selling, in general, is that it can be challenging to know if it has taken place.

However, several indicators may help determine if this is the case.

Read through the following 11 scenarios. If you recognise any of these, you may have received unsuitable pension transfer advice and could have the basis for a mis-selling claim. If so, contact us for a free, no-obligation review of your pension transfer and advice.

1.     Your financial adviser didn’t get to know you

Final salary pension transfer mis-selling might have taken place if your financial adviser did not ask for the following:

  • Information about you, your family, and how much income you’d need to support your family in retirement.
  • Information about your income, employment, current total incomings and outgoings, tax position, and entitlement to the state pension and other benefits.
  • Information about your health.
  • Information about debts, investments, and other pensions.
  • Your retirement plans around your desired lifestyle and retirement age.
  • Your appetite for risk and the extent to which you’d accept a reduced lifestyle in retirement if pensions and investments performed poorly and affected your retirement income.

If relevant, your adviser should also have asked you for the same information for your partner or spouse.

2.     Your financial adviser didn’t consider your existing pensions

Mis-selling might have taken place if your financial adviser didn’t highlight how your DB pension could meet your essential financial needs and instead focussed on the following:

  • Telling you about gaining control and flexibility around your pension.
  • Promoting the idea of early retirement.
  • Telling you how you could take a more considerable, tax-free amount of money as a lump sum rather than waiting to withdraw your pension.

3.     Your financial adviser said one thing but then said something else

Your pension transfer may have been mis-sold if your financial adviser recommended in writing that you didn’t transfer your pension, but:

  • Hinted you should transfer anyway.
  • Did not explain the value of your existing pension.
  • Did not explain the potential risks of transferring.
  • Explained the potential general risks of going ahead with a pension transfer, but not in a way tailored to your circumstances and requirements.

4.     Your financial adviser didn’t learn what you did and didn’t know

Mis-selling might have taken place if your financial adviser didn’t:

  • Check your understanding of final salary pensions and alternative schemes.
  • Explain the potential benefits and risks of alternative schemes.
  • Make it clear what you’d be giving up by going ahead with a transfer.

5.     Your financial adviser didn’t discuss your retirement objectives

Mis-selling might have occurred if your adviser did not consider or outline how your final salary pension and subsequent pension income could help you achieve your retirement objectives.

6.     Your DB pension was your largest or sole guaranteed pension

Pension transfer mis-selling might have occurred if your final salary pension was your largest, or only, guaranteed pension, and you have limited other assets to support you financially in retirement.

Mis-selling could have occurred regardless of whether your financial adviser checked this with you.

7.     You were mis-sold an annuity

Mis-selling may have occurred if your financial adviser recommended you transfer out of your final salary pension to purchase a similar annuity, even though you informed them you were in average or good health.

8.     You were concerned your final salary pension provider was going to go bust

Mis-selling might have taken place if you thought your final salary pension provider was going to go out of business and your financial adviser did not make clear how your fund being taken over by the Pension Protection Fund (PPF) would affect your retirement plans.

9.     Your final salary pension transfer has left you lumbered with hefty fees

Pension transfer mis-selling may have occurred if your financial adviser recommended you transfer to a specific scheme, and you are consequently liable for far higher fees than anticipated.

10.  Your financial adviser focused only on the positives

Mis-selling may have taken place if, when recommending you transfer, your financial adviser concentrated solely on the potential for positive investment returns and didn’t highlight how your pot might:

  • Reduce.
  • Not grow in line with inflation.
  • Run out before you die.

11.  You’re now invested in unusual areas

Your pension transfer may have been mis-sold if your financial adviser recommended you transfer to schemes in which you are now invested in unusual areas, including but not limited to:

  • Storage units.
  • Forestry.
  • Student accommodation in the UK and overseas.
  • Farmland in far-flung places.
  • Renewable energy assets.
  • Parking schemes.

I think my final salary pension transfer was mis-sold. What should I do next?

If you feel like you need help in bringing your pension mis-selling compensation claim, LawPlus Solicitors will conduct a free, no-obligation review of your pension transfer and advice. If we believe you have grounds for compensation, you can instruct us to bring your claim on a no-win, no-fee basis.

However, you are not obligated to use us or any other party to bring your claim, and you can bring your claim yourself if you wish.

If you decide to bring a claim yourself, your first course of action is to complain directly to the firm from which you received pension transfer advice if it is still trading. In this case, you must write to the firm outlining the following:

  • That you are making a complaint.
  • The basis of your complaint – that you believe your pension transfer was mis-sold.
  • The reasons why you believe your complaint to be valid.

Ensure you include any evidence to support your claim and ensure it’s clear to which elements of your complaint each piece of evidence relates.

If your adviser is no longer trading, you must direct your complaint to the FSCS. You can search for your adviser on the FSCS website, which will tell you the firm’s status and also if the FSCS is accepting claims relating to them.

Your financial adviser must respond within eight weeks.

In response, they will tell you if:

  • They agree with your claim, in which case they owe you money.
  • They need more time to investigate your complaint. In any such response, they should also tell you when they will next update you.
  • They do not believe you have grounds for complaint in the form of a final response letter.

Escalating your complaint to the FOS

You can complain to the FOS if:

  • You receive no response from your financial adviser.
  • You are dissatisfied with the response you receive, whether that be the financial adviser dismissing your complaint or offering to repay you a lower sum than you believe they owe you.

Getting justice for your mis-sold final salary pension transfer

If you believe your final salary pension transfer was mis-sold, don’t write off your cash!

Follow the guidance throughout this guide to gather evidence and outline why you believe you were mis-sold. If you want help with your pension transfer mis-selling claim rather than doing it yourself, contact us for a free, no-obligation review of your pension transfer and advice.

Start your journey to getting the compensation you deserve today!

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