Final salary pension transfers stall as High Court throws the rules into doubt
People who attempt to swap final salary company pensions for cash are being left in limbo following a controversial legal judgment.
More than a quarter of a million savers have taken advantage of highly generous cash offers to o give up membership of these workplace kplace pension schemes in recent years. ars.
A pension that promises to pay £30,000 a year might be swapped pped for £900,000 or more in cash, h, for instance. Savers are also attracted cted by the extra flexibility and tax treatment eatment on death of personal pensions. s.
It is thought that £34.2bn was withdrawn from company schemes hemes in 2017 alone.
But future transfers are now w under threat in the aftermath of a High Court ruling that will force rce Lloyds Banking Group to equalise alise benefits between male and female staff.
According to Royal London, n, the mutual pension firm, some me schemes have put a temporary y block on transfers following the he court case.
Three female members of the high street bank’s scheme e argued that their pensions had d been undervalued as a result of “guaranteed minimum pensions” (GMPs) that applied when staff were taken out of the earnings-related state pension between 1990 and 1997. For decades schemes argued that they did not have to correct the inequalities created by the GMP rules. Losing the case mean means Lloyds is expected to have to spend u up to £150m resolving the GMP issue. issue The bill for other British firms with final salary s liabilities could be as high as £15bn £15 in total, according to estimates by b consultancy LCP. Royal London’s Lo Sir Steve Webb warned th that the ruling’s lack of clarity was making makin schemes hesitant to approve transfers. tr He said: sa “It is vital that pension savers who are considering a transfer transf out are not left in limbo while the industry works out what exactly this ruling means. “The “Th pensions industry and pension pensi savers urgently need to hear from f the authorities what they s should do now with regard to pension pen scheme valuations and pension pensio transfers. “With Wit some pension transfers already on hold, a public statement is urgently urgen needed.” Government Gove rules force savers to take financial advice when they transfer a final salary pension valued at £30,000 or more. Strictly speaking, the adviser does not need to recommend a move for a transfer to go ahead. However, in practice savers have been left frustrated by pension firms that will not accept a transfer unless it is signed off by an adviser.
The Financial Ombudsman Service said this week that it had received more than 300 complaints relating to final salary transfers since 2015. Despite this representing just 2pc of all complaints, the ombudsman said these transfers were a “major concern”.
Most disputes were about delays in receiving financial advice. Of these complaints, 44pc were upheld.
Around 30 complaints were made against an adviser who would not recommend a transfer.
There has been a boom in transfers since 2015, when reforms known as the “pension freedoms” made “defined contribution” and personal pensions much more attractive.
Final salary schemes pay a guaranteed, inflation-linked income for life but were not included in the reforms. As a result, payments typically stop when the member or their spouse dies.
The City watchdog, the Financial Conduct Authority (FCA), has paid tens of thousands of pounds in compensation to consumers who complained about incorrect information on a crucial industry register, it has emerged.
Telegraph Money lodged a Freedom of Information request to establish how many people had lost out because of poor quality information
Sir Steve Webb, a former pensions minister, said schemes had become hesitant to approve transfers