I lost £277,000 on my pension after making a big pension mistake
WHEN Dot Russell met with a financial advisor, she thought her money was in safe hands.
In reality, she made a mistake that would cost her £277,000 upon retirement.
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Dot, from Whitburn, West Lothian, had originally looked for a mortgage broker online.
She needed help converting her interest-only mortgage to a repayment mortgage and found a man online who offered to visit her at her home.
During their conversation he asked her what pensions she had. He told her that he was also a certified pension advisor.
Dot, 55, had a defined benefit pension, which provides a guaranteed income for life, through her job at the council, where she had worked for 34 years.
The adviser immediately told her to transfer this pension and take out a lump sum of £272,000 in cash.
Ten years later, Dot has discovered she was one of thousands of savers who suffered losses after being given bad advice to give up their guaranteed pensions.
The company that advised her, Capital & Income Solutions, has more than a thousand victims alone.
The man she spoke to turned out not to be qualified to give pension advice.
He acted as an ‘introducer’ to the company, which has now gone bankrupt and left behind a £44m damages bill.
“He played on my financial naivety and my confidence that he was qualified, and made me feel like I would be foolish not to take advantage of this opportunity,” Dot says.
“The whole thing is very disturbing and I deeply regret it.”
Here we take a closer look at pensions and what to do if you think you have been poorly advised. . .
WHY YOU SHOULD NOT LEAVE THE DEFINED BENEFIT SCHEME
Pension schemes with defined benefits or final salaries offer savers a fixed income for life.
These gold-plated pensions tend to be more generous than modern workplace pensions, where employees build up a fund.
Thanks to the guaranteed income, they offer protection against rising inflation and are protected against fluctuations in the stock market.
Watchdog, the Financial Conduct Authority, has repeatedly warned that giving up these pensions is not in the interests of most savers.
By giving up these pensions and taking the money, many savers will suffer losses because the guaranteed income they would have received over time would have been higher.
In Dot’s case, the Financial Services Compensation Scheme, which intervenes when financial firms fail, estimates she is £277,000 worse off after being advised to shift her savings.
She received £85,000 in compensation from the FSCS, which is the most the FSCS can pay out.
Many savers have also lost huge amounts of money after being convinced to put money into bogus investments.
BIG BILL
To date, 1,082 victims have claimed compensation from the FSCS for advice from Capital & Income Solutions.
The FSCS says almost all of the claims against the Leeds-based company were related to poor advice on pension transfers.
The company advised savers to transfer their pensions because, by signing off on these transfers, it could charge them a hefty five percent fee.
This usually amounted to thousands of euros per customer.
In some cases, victims have been advised to then transfer their pension to another provider for a five percent fee – this is known as ‘churning’.
The FSCS added that a large number of the companies’ victims were former employees of the British Steel Pension Scheme.
The BSPS was the subject of a scandal in which around 4,000 steelworkers were wrongly advised to transfer their pensions.
Capital & Income Solutions also targeted employees of other large organizations that had generous pension benefits, such as local government and Land Rover.
The FSCS told Sun Money that 314 victims of Capital & Income Solutions have received the maximum compensation amount so far, but their actual losses are much higher.
RENEWAL LOSSES
ENGINEER Brian Wells, from the West Midlands, has worked for Land Rover for 39 years.
At age 59, he started thinking ahead to retirement at age 65, when he unexpectedly received a high rating for his guaranteed pension.
This is the amount the company would pay him in one lump sum to give up his retirement benefits.
Not knowing which option was best, he went online and found Capital & Income Solutions, which said it could help him make the right choice for his money.
After just one conversation, Capital & Income Solutions encouraged Brian to leave the scheme and receive a cash payment.
The adviser claimed to be a “government recognized pension transfer specialist” and said the value of pension transfers was at a “record high”, suggesting Brian could lose if he did not transfer.
Brian paid the adviser £12,817 in fees to transfer his pension – a mistake that is estimated to have cost him £385,000.
“I didn’t understand what I was doing. I completely trusted the advice I received,” says Brian.
“The magnitude of what I have lost is devastating.”
Brian only recovered 22 percent of his total losses through the FSCS.
REQUEST COMPENSATION
CAPITAL & Income Solutions is just one of dozens of companies that have given poor pension transfer advice and gone bankrupt.
If you think you have received bad advice about transferring your guaranteed pension, you can file a complaint with the Financial Ombudsman.
To make a complaint, visit financial-ombudsman.org.uk/make-complaints or call 0800 023 4567.
You’ll need information about the company, such as its name and address, and when your problem occurred.
Before you can take your case to the FOS, you must first file a complaint with the company.
If the company you have been doing business with is no longer trading, you can make a claim with the FSCS instead.
Check the FSCS website to see if your company has gone bankrupt.
To make a claim, visit fscs.org.uk/making-a-claim.
Claims are free and you do not need to use a claims management agency.
WHEN TO MOVE
TRANSFERRING from a defined benefit pension is not the best option for most savers.
However, there are some circumstances where this may be the right thing to do, such as if you have a serious health condition that could shorten your life expectancy.
It is unlikely that you will benefit from a guaranteed income for as long as other people.
Even if your pension is very small and you only pay out a meager amount each year, it can be advantageous to take the lump sum amount.
You are required to seek financial advice if you wish to transfer your defined benefit pension where the total value exceeds £30,000.
Helen Morrissey, head of pension analysis at Hargreaves Lansdown, says: “The benefits you receive from a defined benefit pension are hugely valuable and it rarely makes sense to transfer them.
“You get a guaranteed income for life that increases every year and this brings enormous peace of mind.”