Another pensions scandal is brewing

The British Steel pension scheme alone could account for £40bn of mis-selling © Getty

(Image credit: AFP via Getty Images)

published 11 March 2020

Get set for the final-salary pension scheme transfer mis-selling scandal. The Financial Conduct Authority (FCA), the City regulator, says that savers have transferred up to £20bn of savings out of defined-benefit (DB) occupational pension schemes into individual defined-contribution (DC)arrangements owing to poor advice. Lawyers acting for members of the British Steel pension scheme claim this case alone could account for £40bn of mis-selling.

Yet beyond the headlines there are still savers who believe that giving up guaranteed final-salary pensions in favour of an arrangement such as a self-invested personal pension (Sipp) is right for them.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Paul Dyer, a former deputy chief risk officer at the FCA, has examined transfer advice, and the failings he says he has seen most often will sound very familiar to savers who have had ostensibly nuanced conversations with advisers weighing up the pros and cons of a transfer. They include focusing too narrowly on the fact that many occupational schemes are currently offering unusually high transfer values to leavers and assuming that the fact savers have assets other than their pension provides sufficient cushion if the Sipp disappoints.

Dyer also believes that much of what advisers tell clients about estate planning is vague and shallow. It’s true that since the pension freedom reforms Sipps have made it easier to pass on pension cash; this is often cited as an advantage over final-salary schemes. But any proper transfer analysis should take into account scheme features such as death in service and dependants’ pensions, which can also benefit heirs. And savers also have to realise that the longer they live, the fewer pension savings they’ll have left to pass on in any case.

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.