Poor pensions advice curbs cash-ins

THE number of retirees cashing in their “gold-plated” pensions has slowed dramatically, amid fears that savers are being given bad financial advice.

It follows a boom in savers swapping their guaranteed final salary incomes for cash lump sums after the introduction of the Government’s pension freedoms in 2015.

Final salary cash-ins peaked last year, with 100,000 people transferring money away from their defined benefit pensions. The number was down by 34 per cent in the first quarter of this year from 32,478 to 21,482, according to City watchdog figures requested by Money Management magazine.

It comes after MPS on the influential Commons work and pensions select committee raised fears that a pensions mis-selling scandal was brewing after reports that unscrupulous advisers were encouraging savers to transfer their money from guaranteed schemes into rip-off funds.

The Financial Conduct Authority (FCA) has also expressed concerns about the quality of advice people are receiving, and has banned dozens of firms from accepting fees for such advice. The worry is that savers who have given up valuable guaranteed income for a lump sum could subsequently see it fall in value if stock markets take a turn for the worse. Research by the FCA, which regulates pension advisers, found that one in five recommendations given by financial advisers to cash in guaranteed pensions was unsuitable, potentially leaving savers worse off. In addition, only half of such advice met its standards, it said.

Final salary pensions, often referred to as “gold-plated” pensions, are the most generous form of pension and are now largely unavailable. However, experts said that in many cases cashing in a final salary pension could still be worthwhile.

This is because the cash sums savers can swap their guaranteed annual pensions for have risen dramatically since the pension freedoms because of low interest rates. In the most extreme cases savers are being offered in excess of 50 times their annual pension income to leave their employer pension scheme.

For example, someone with a guaranteed pension of £20,000 a year might be offered the chance to swap it for £1 million in cash.

Under current rules, savers are required to pay for professional financial advice before cashing in a final salary pension worth £30,000 or more. Many advisers take a percentage of the cash lump sum for the advice, meaning their fee can run into thousands of pounds.