Fi­nal salary pen­sion trans­fers slow to a trickle

Savers have cashed in £30bn from ‘fi­nal salary’ pen­sions, but trans­fer rules are be­ing tight­ened, re­ports Sam Brod­beck

The Sunday Telegraph - Money & Business - - Front page -

Fi­nal salary pen­sion trans­fers are grind­ing to a halt fol­low­ing curbs by the City watch­dog and in­sur­ance com­pa­nies’ fears of an im­pend­ing mis-sell­ing scan­dal.

At the same time, the port­fo­lios of the hun­dreds of thou­sands who have al­ready trans­ferred have be­gun to suf­fer as a re­sult of re­cent stock mar­ket falls.

As more cases emerge of savers who re­gret giv­ing up gold-plated pen­sions, ac­cess to the “pen­sion free­doms” is be­ing re­stricted.

It is thought that since 2015 about a quar­ter of a mil­lion peo­ple have swapped guar­an­teed “fi­nal salary” pen­sions for “de­fined con­tri­bu­tion” plans that al­low far greater flex­i­bil­ity un­der the pen­sion free­doms rules.

Trans­fer val­ues have been in­cred­i­bly gen­er­ous – a £10,000-a-year pen­sion can be­come £350,000 or more in cash – be­cause of low in­ter­est rates. But the Fi­nan­cial Con­duct Au­thor­ity is wor­ried that peo­ple have been too quick to give up guar­an­teed re­tire­ment in­come and may run out of cash.

A com­bi­na­tion of the ap­peal of the pen­sion re­forms, which ap­ply only to de­fined con­tri­bu­tion ar­range­ments, and sky-high cash of­fers has pushed trans­fers to ex­tra­or­di­nary lev­els over the past cou­ple of years. Of­fi­cial data sug­gests more than £30bn was moved out of fi­nal salary plans in 2017, com­pared with just £5bn in 2014.

But the pace of trans­fers is ex­pected to slow to a trickle as fi­nan­cial ad­vis­ers – who must be con­sulted for deals worth £30,000 or more – pull out of the mar­ket. As Tele­graph Money has re­ported, savers have found it in­creas­ingly dif­fi­cult to find ad­vis­ers will­ing to help them move pen­sions.

Now that search looks cer­tain to be­come even harder. Last month the FCA ruled that pen­sion com­pa­nies that of­fered free trans­fer re­ports to ad­vis­ers were break­ing EU “in­duce­ment”, or bribery, rules.

As a re­sult some of Bri­tain’s largest providers, in­clud­ing Pru­den­tial and Stan­dard Life, have with­drawn their ser­vices, pil­ing pres­sure on the few ad­vis­ers op­er­at­ing in the trans­fer mar­ket. This dwin­dling group also faces ris­ing in­sur­ance costs as un­der­writ­ers in­crease pre­mi­ums for what they judge to be high-risk busi­ness.

Alis­tair Cun­ning­ham, a pen­sion trans­fer spe­cial­ist at Win­gate Fi­nan­cial Plan­ning, said: “There have been far too many trans­fers over the past two or three years and now the mar­ket is mov­ing the op­po­site way where ad­vis­ers are too scared to give the ad­vice and, be­cause you have to get ad­vice, many savers will not be able to trans­fer out when they want to.”

Choppy stock mar­kets since the start of the year – the FTSE 100 fell by more than 10pc be­tween Jan­uary and March – have also be­gun to un­nerve peo­ple who have al­ready moved their pen­sions. For many, this will be the first time they have been re­spon­si­ble for their own in­vest­ments and the re­al­ity of giv­ing up the se­cu­rity of a com­pany scheme will be dawn­ing on them.

James Bax­ter of Tide­way, a trans­fer ad­vice firm, said: “This year will be tougher for peo­ple com­pared with those who trans­ferred out in 2016 and 2017, who had a smoother ride. Peo­ple com­ing out of fi­nal salary schemes now will get lower trans­fer val­ues and could be down 3pc or 4pc. That’s not a big deal but if you’re not ex­pect­ing it, it can be quite scary.”

‘I re­gret cash­ing in my £560,000 pen­sion’

En­gi­neer John Dou­glas, 53, was one of the first wave of peo­ple to trans­fer their pen­sion to take ad­van­tage of the pen­sion free­doms. Three years ago he re­turned to Bri­tain after a stint work­ing over­seas and de­cided to leave his em­ployer.

That meant he be­came a “de­ferred” mem­ber of the staff pen­sion fund and was given an of­fer to swap it for a per­sonal pen­sion. His fi­nan­cial ad­viser rec­om­mended tak­ing up the of­fer, which meant giv­ing up an in­come of £28,000 a year from age 65 for £560,000 in cash.

He com­bined this with an­other £30,000 pen­sion and put both into a self-in­vested per­sonal pen­sion (Sipp).

“My choice was in­flu­enced by the flex­i­bil­ity of in­vest­ment choice,

im­proved death ben­e­fits and belief that my of­fer was gen­er­ous,” said Mr Dou­glas.

“De­pend­ing on growth, I was also at­tracted by the pos­si­bil­ity of with­draw­ing my pen­sion early – at, say, age 60. More­over, with my home worth £800,000 and in­ter­est-only mort­gage debt of £300,000, the op­tion of tak­ing lump sums to re­duce mort­gage debt is ap­peal­ing.”

Mr Dou­glas cal­cu­lated that he would need to grow his Sipp to around £1.2m over 15 years to match what he had given up. “How­ever, after three years of dis­mal growth, my Sipp is now worth around £570,000 and I am get­ting con­cerned,” he said.

Now on a more mod­est salary and with a wife and three young chil­dren, he is start­ing to have re­grets.

“I have worked very hard and

I don’t want to see my pen­sion flatlin­ing or even shrink­ing,” he said. “Apart from the Sipp, my wife and I only have a cou­ple of other small pen­sions. With ex­pert ad­vice my plan now is to get my pen­sion pot back on course over the next 12 years be­fore re­tire­ment.” As time passes, cases like Mr Dou­glas’s are likely to be­come more com­mon, say ad­vis­ers, as more trans­ferred pen­sions fail to keep pace with com­pany schemes. Yet ac­tu­ar­ies pre­dict that hun­dreds of thou­sands more peo­ple will still cash in fi­nal salary sav­ings. Con­sul­tant Hy­mans Robert­son has pre­dicted that the num­ber of fi­nal salary plans in Bri­tain will plum­met over the next 25 years from around 5,500 cur­rently to just 1,000. This will be driven by some schemes merg­ing, oth­ers fall­ing into the Pen­sion Pro­tec­tion Fund when em­ploy­ers fail and as many as a mil­lion trans­fers to al­ter­na­tive pen­sion ar­range­ments, ac­cord­ing to the firm.

Mr Bax­ter said: “Things have qui­etened down a bit but there has still only been about £30bn of trans­fers out of more than £1.6 tril­lion of li­a­bil­i­ties held by fi­nal salary schemes. We’ve just scratched the sur­face, we’ve only taken the foam off the pint.”

John Dou­glas gave up his fi­nal salary pen­sion

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