Why it pays to grumble about pensions

published 27 April 2018

893-pensions-634 — Don't hold back if you're not satisfied

Not enough people whinge, but those that do have a point.

Customer dissatisfaction with pension products resulted in fewer complaints than any other regulated financial service last year, according to the Financial Conduct Authority (FCA). However, the complaints were more likely to be upheld than cases involving other products, says the City regulator.

Occupational and personal pensions accounted for only 1% of all complaints recorded by financial-services firms last year, said the FCA, with just 0.12% of pension products giving rise to a complaint, a lower proportion than in any other category. Complaints related to pensions also tended to produce lower compensation pay-outs. However, while the industry will welcome the data, the FCA also pointed out that 68% of pension complaints were upheld in the first half of last year, with 59% upheld in the second half, suggesting they had more merit than those about other products. Only complaints related to the mis-selling of payment-protection insurance (PPI) saw higher proportions upheld.

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The FCA's complaints figures follow mounting concern about pockets of poor-quality advice in the pension industry. In particular, campaigners have warned about unscrupulous financial advisers capitalising on adverse publicity about changes to final-salary occupational pension schemes by persuading savers to transfer their money to less attractive individual arrangements. Such advice is very rarely appropriate, since it results in savers missing out on a contribution from their employer, as well as guaranteed benefits. Consequently, a complaint would be very likely to succeed, particularly if referred to regulators.

The high uphold rate for pension complaints mirrors data from the Pension Ombudsman, which has powers to investigate complaints about how pension schemes of all types are run. Its figures also suggest that complaints about pensions have been on an upward trend in recent years.

In practice, there may be confusion about how to complain about a pension. While all complaints about pensions must first be made to the firm or scheme involved, the Financial Ombudsman hears cases related to advice given on pension products, while the Pensions Ombudsman manages cases related to scheme administration and operations. There is also concern that the low complaints rate in the pension sector may reflect the long time scales over which problems come to light, particularly since many savers are not closely engaged with their pensions.

Taxman gives out wrong advice

HM Revenue & Customs (HMRC) is likely to face complaints after its website offered incorrect advice that may have led to pension savers missing out on valuable tax reliefs.

The error was found in an online calculator that was supposed to help high earners work out much they could pay into their private pensions. In most cases, savers have an annual pensions allowance of up to £40,000, but those earning more than £150,000 have their allowance scaled back. HMRC's online calculator had this rule built into its model, but omitted to take into account the carry-forward regulations, which enable savers to use pension allowance left over from their past three years to supplement their allowance in the latest year.

HMRC has previously come under criticism for incorrectly issuing fines and publishing the wrong information on its site. Only "a few dozen users" were affected by the most recent problem, says a HMRC spokesperson.

Tax tip of the week

If you sell your home for more than it cost you, and at some time you've used part of it for business, you need to consider capital-gains tax (CGT), says Tax Tips & Advice. If you are self-employed and any part of your home was exclusively used for your business, the gain for that part must be worked out separately (via a "reasonable method"). If it wasn't used for the entire period you owned it, you can apportion the gain for the amount of time for which it was used.

Although the gain doesn't qualify for private-residence relief (PRR), it can qualify for entrepreneur's relief and is not liable for the higher CGT rates that apply to gains on residential property. If you're a director or employee, and you use part of your property for any purpose other than as your home, HMRC can reduce the PRR you are entitled to by a "just and reasonable" amount.

Give gig workers a boost

Proposals to switch to a flat rate of tax relief on pension contributions could be set for a comeback, following a report suggesting such a move could help Britain's five million self-employed workers save for retirement.

Successive governments have considered abolishing the current system of tax breaks, in which those with private pensions get up-front tax relief on contributions at their marginal rate of income tax. But ministers have held back amid fears that such a major change would be criticised as an attack on middle-class savers.

However, the current system hands 40% of a £30bn annual amount of tax breaks to the richest 10% of those making a claim, says Matthew Taylor, head of the Royal Society of Arts (RSA) think tank. Offering a flat rate of relief set at 30% would cost the Treasury nothing, he said, but would increase the support given to millions of less wealthy savers, including many self-employed people, who get little help with retirement saving.

Just 17% of self-employed workers are currently paying into a pension, said the RSA report, with the self-employed excluded from the auto-enrolment system, which ensures every employed worker in the country is entitled to a pension contribution from their employer. Taylor, who was asked by the government last year to investigate the gig economy, wants to see the self-employed given access to auto-enrolment schemes.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.