‘Don’t pull up the ladder on our pension freedoms’
Too many pensioners are being forced to take costly advice when they transfer small final salary pensions, writes Sam Brodbeck
Britain’s great final salary pension cash-in is grinding to a halt, new figures show. Although the past year has seen an unprecedented increase in the number and value of gold-plated pensions being swapped for cash lump sums, the most recent figures show a marked slowing. It is thought that more than 100,000 people quit final salary schemes in the 2017-18 tax year alone, cashing in an average of £200,000 a time. But high-profile scandals, including the cases of hundreds of steelworkers who believed they were wrongly convinced to cash in company pensions, have caused a rapid retrenchment to just 20,000 in the first quarter of this year.
MPs have warned of “the next pensions mis-selling scandal” but others maintain that, in the right circumstances, swapping a guaranteed income for a more flexible lump sum is wholly appropriate and potentially life-changing.
Part of the reason for the slowdown in transfers is that advisers must sign them off when pensions are worth £30,000 or more. Now Sir Steve Webb, the former pensions minister, currently a director at Royal London, the mutual insurer, has backed calls from Telegraph Money to raise the cap.
Fear of future complaints has drastically shrunk the pool of firms willing to undertake the work. If you can find an adviser, fees easily run into several thousands of pounds because of the complexity of the advice.
This newspaper has previously called for the £30,000 threshold to be raised so that fewer people are forced to take advice on relatively small pension pots. Sir Steve said it looked “a bit daft” to force people to spend such high sums when the pension being transferred might make up only a small part of their wealth.
“If the £30,000 pot is all the longterm savings you have, you shouldn’t even be thinking about a transfer,” he said. “But if it’s something you’ve picked up along the way and is marginal to your income, having to pay several thousand pounds seems disproportionate.”
Under current rules, a pension that pays as little as £20 a week could be deemed large enough to warrant taking advice. Royal London wants the threshold increased to at least £50,000. For sums below that level, the firm said people should simply have to show that they have used the Government’s free pension advice service, Pension Wise.
Telegraph Money reader Ian Handley, 59, is one of thousands of people to have had a positive experience since transferring his final salary pension 18 months ago. Mr Handley, who runs a mortgage brokerage in Surrey, built up the pension during a 20-year career with Lloyds bank.
He did not want to say precisely how much the pension was worth now, but said the “transfer value” was 28 times the income he would have received. This means that if the pension was due to pay him £20,000 a year, he would have received £560,000 by transferring.
Mr Handley paid around £5,000 to a specialist advice firm, Tideway, for arranging the transfer, and ongoing fees of 1pc a year in total to Tideway and Charles Stanley, a wealth manager, which jointly manage the pension pot.
Giving up a guaranteed income is “not for everyone”, he conceded, “but people should have the freedom to decide – for me it’s been brilliant”.
He added: “There were three reasons for transferring. The lump sum I received was as high as it will ever be, and having got capital into my hands I feel I can significantly outperform the trustees of the Lloyds pension scheme by taking more risk. Lastly, on the basis that death and tax are the only two certain things in life, it’s better for