Pensioners are ill-advised 53pc of the time

capital0ne

Savers trying to swap their "final salary" pensions for cash face a crackdown from the City watchdog following a damning report into the quality of financial advice they are receiving.

Financial advice is required by law when savers transfer final salary benefits worth £30,000 or more, but an investigation by the Financial Conduct Authority (FCA) has found that in many cases the advice is poor.

In the majority of cases the watchdog either said a transfer was "unsuitable", or it was unclear whether it was the right thing to do.

The analysis also raised suspicions that advisers who encouraged savers to transfer out of their pensions were doing so in order to then sell them investments. The review concluded, for instance, that only a third (35pc) of the investments recommended by the adviser after a transfer were suitable.

Four advice firms have stopped advising on transfers after the watchdog intervened, while a further 16 companies have agreed to stop conducting transfers as a result of its work on preventing scams, the FCA said.

Advisers and regulators are anxious to ensure the pension mis-selling scandal of the Eighties and Nineties is not repeated.

HappyHarry

Although that is a bit of a spin on what the FCA actually said.

For those interested, the true text is here;

https://www.fca.org.uk/news/news-stories/our-work-defined-benefit-pension-transfers

Malthusian

The analysis also raised suspicions that advisers who encouraged savers to transfer out of their pensions were doing so in order to then sell them investments.

They better damn well have been selling them investments because if they encourage them to transfer out of their pensions while ignoring what the pension is being transferred into, the advice is automatically unsuitable. You don't advise someone to jump off a ten-foot diving board without knowing what's underneath.

While there is a clear anti-adviser spin to the article (the Telegraph has a tie-in with Interactive Investor, which means it gets a commission when someone decides not to pay an IFA and instead churns their pension to follow the Telegraph's share tipster recommendations), the results of the FCA's investigation are shocking. 36% of files unclear and 17% unsuitable means 1 out of 2 advisers are not doing their job. For comparison, in previous FCA studies of the wider market, around 90% of files were found to be suitable. And with defined benefit transfers being the riskiest thing an adviser can recommend, the level of care taken and therefore the success rate should be higher than the average.

Within the next five years we will see some interesting threads on this forum, as the people who are currently coming here to ask how they can cash in their defined benefit pension return to let us know how they're getting on.

JoeCrystal

Malthusian wrote: »

Within the next five years we will see some interesting threads on this forum, as the people who are currently coming here to ask how they can cash in their defined benefit pension return to let us know how they're getting on.

That is really something I am genuinely looking forward to along since I am always interested in finding out what happened next. What I am not looking forward to are unhappy people who may regret transferring out money and complain about it. I reckon that will happen once we suffer a proper market crash.

coyrls

JoeCrystal wrote: »

That is really something I am genuinely looking forward to along since I am always interested in finding out what happened next. What I am not looking forward to are unhappy people who may regret transferring out money and complain about it. I reckon that will happen once we suffer a proper market crash.

I reckon that will happen as sure as night follows day.

bostonerimus

If the government is going to put the option to get a lump sum from a DB pension in to law then it should allow people to actually do that and leave it up to them to do it sensibly.......my belief is that going to a financial professional for advice is often a bad move and you are better off to DIY and keep things simple so you understand 100% of what's happening, unfortunately that seems to be impossible in the UK. I took the option of a $35k CETV from an old employers DB pension plan a few years ago. I'm in the US so there was no need for professional advice and all I did was to set up a transfer to the US equivalent of a personal pension plan with Vanguard. It took one week to transfer and the cost was zero, nada, nothing at all. It's invested in a US equity index fund.

However, I have big misgivings about the freedom to get a lump sum from a DB pension in the first place and believe that most legislation involving DB and DC pensions is written to advantage the employer and the financial industry rather than the employee. Converting DB plans to CETVs in DC plans gets a big liability off the employer's books and give the financial industry access to more money to charge fees on. I think that was the main motivation for these "pension freedoms".

Thrugelmir

Malthusian wrote: »

Within the next five years we will see some interesting threads on this forum, as the people who are currently coming here to ask how they can cash in their defined benefit pension return to let us know how they're getting on.

Literally a lottery. As you say be interesting to revist the topic. As the next 5-10 years could be extremely telling.

capital0ne

"Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett

very true

bostonerimus

Thrugelmir wrote: »

Literally a lottery. As you say be interesting to revist the topic. As the next 5-10 years could be extremely telling.

I agree. Even if the markets keep going up at the current ridiculous rates I would expect there to be some future postings where people are spending their pots down quite quickly from a combination of unrealistic withdrawals and high annual fees paid to IFAs and other middlepeople. If there is a serious correction or crash it could get really nasty.

Thrugelmir

bostonerimus wrote: »

Even if the markets keep going up at the current ridiculous rates I would expect there to be some future postings where people are spending their pots down quite quickly from a combination of unrealistic withdrawals and high annual fees paid to IFAs and other middlepeople. If there is a serious correction or crash it could get really nasty.

For markets to carry on rising. Then companies are going to have to increase profits/cash generation to meet these expectations.

Linton

bostonerimus wrote: »

I agree. Even if the markets keep going up at the current ridiculous rates I would expect there to be some future postings where people are spending their pots down quite quickly from a combination of unrealistic withdrawals and high annual fees paid to IFAs and other middlepeople. If there is a serious correction or crash it could get really nasty.

I think we will find that the really serious problems will be due to foolish diy investing rather than to IFA fees. Hopefully an IFA produced financial plan will nclude the effect of fees.