Help! I’ve been mis-sold a pension
You should look forward to retirement, to spending time with your loved ones and living life to the fullest.
After years and years of hard work, you’ve earned it.
You shouldn’t have to worry about money issues. Or how to make your pension stretch for the next however many years of your life.
But the UK is currently in the middle of a pension mis-selling crisis. Not to be confused with the other (cost of living) crisis we’re also going through.
In the last two years, the number of people claiming mis-sold pension compensation has more than doubled. (Expert Pension Claims, 2021)
Could you claim?
Have a think.
Were you sold stories of riches if you joined a specific scheme?
Do you think your adviser left out some much-needed information?
Were you advised to transfer out of your workplace pension?
If so, you may have been mis-sold a pension.
Between 2015 and 2018, 235,000 defined benefit (DB) scheme members received transfer advice.
69% were advised to transfer.
48% were given the wrong advice. (Financial Conduct Authority, 2021)
Here’s everything you need to know.
What is pension mis-selling?
A pension product is considered mis-sold if a regulated adviser provided you with incorrect, unsuitable, or misleading information. Therefore, preventing you from making an informed decision.
What about underperforming pensions?
Simply losing money on an investment doesn’t mean you’ve been mis-sold a pension.
It can only count as mis-selling if
· Your adviser didn’t prepare you for the risks or
· They promised you a specific outcome that was not achieved
Remember – pensions are long-term investment products, and they’re designed to suffer, and weather, short-term fluctuations in value.
You shouldn’t switch at the first, or even second, sign of poor performance. You could miss out on further contributions when the market recovers.
How common is it?
Pension mis-selling was a major problem in the late 80s, early 90s.
As many as 2 million people were persuaded by commission-hungry advisers to trade in their old workplace scheme for a shiny new personal scheme. (NerdWallet UK, 2021)
Don’t fool yourself into thinking it’s a problem of the past, however.
Since 2015, with the introduction of pension freedoms, more and more people have been dipping into their retirement savings and transferring out of their DB schemes.
With a DB scheme, your employer guarantees a pension payment on retirement that is based on your earnings and length of service.
You should be very careful about doing this. You’ll be putting considerable pressure on your later-life savings which won’t be so easy to rebuild.
Thousands of people are affected by pension mis-selling. Take these two national cases, for example.
British Steel Pension Scheme (BSPS)
Between 2017 and 2018, around 7,800 British Steel workers were advised to transfer out of their secure DB pensions for one-off cash lump sums.
Nearly half of this advice was revealed to be unsuitable by the Financial Conduct Authority (FCA).
Thousands of steelworkers were left with huge gaps in their retirement fund.
The FCA are still working to get compensation into the pockets of these former BSPS members.
In March this year, they released proposals for a compensation scheme worth £71.2 million.
If it gets the greenlight, people can expect to start receiving compensation by late 2023.
If you were affected by the BSPS mis-selling scandal, make sure to stay up to date with the FCA’s plans. Don’t miss out on a chance to put some money back into your pension pot.
Pension mis-selling is not just a serious problem in the UK.
Between 2013 and 2017, deVere USA, a financial advisory institution, advised UK nationals living in the US to transfer their DB pensions into a Qrops.
Qrops, aka qualifying recognised overseas pensions scheme.
They were advised to take a cash equivalent transfer value from their UK pension provider and transfer it to a Qrops.
deVere received a penalty of £6 million for distributing inappropriate advice and for not disclosing the amount of commission (7%) they took.
We’ve looked at the news-worthy cases, but what about those people who don’t make the news or go viral?
In 2018, Malcolm noticed that he may have been mis-sold a pension annuity that he purchased in 2008. Due to health issues he had at the time, he and his family were potentially missing out on financial benefits.
When Malcolm brought his complaint to the company, they maintained that the annuity had been sold correctly.
Dissatisfied, Malcolm took his case to the Financial Ombudsman Service.
They decided that the company had not provided Malcolm with enough information and had therefore mis-sold the annuity.
The business agreed to pay compensation and Malcom’s monthly payments were increased.
How to make a claim
First things first, you can only make a claim if you sought, and received advice, from a regulated adviser. If you set up a pension yourself, then only you are responsible.
You could be eligible to make a claim if your adviser:
· Gave you poor advice, such as recommending that you transfer out of a secure DB scheme into a high-risk personal pension plan.
· Wrongly encouraged you to move your money into high-risk investments.
· Didn’t give you enough information to make an informed decision. E.g., they failed to mention what risks you’d be taking.
· Didn’t mention the benefits you’d be giving up by leaving a certain scheme.
· Made claims of lucrative returns if you acted on their advice.
To make a claim, there are four main avenues you can go through:
· The Financial Ombudsman – you would have to make the claim yourself.
· The Financial Services Compensation Scheme (FSCS) – if the adviser you bought your pension from went bust.
· A claims management company.
· A law firm.
Should you DIY?
If you put in the claim yourself and you’re successful, you’ll be able to keep all the compensation money and save yourself thousands in firm fees.
And, according to the FSCS, you have a good chance of succeeding!
Since 2018, the FSCS reports that it rejected applications from
· 17.2% of law firms.
· 17.8% of DIYers.
· 11% of claims management companies.
The odds are in your favour. Just make sure you gather all the relevant paperwork you’ll need to present a clear and concise case.
What could you get back?
If you’ve been mis-sold a pension, you can claim up to £150,000 in compensation. Or £85,000 if you go with the FSCS.
However, the average pay-outs are much less. They tend to be:
· £25,000 for mis-sold private pensions, and
· £50,000 for mis-sold DB pensions.
Still, £40 million was given to people who were mis-sold pensions in 2018, according to the FSCS.
You have to hurry though! You only have six years from when the product was sold to you, or three years from when you noticed that you had been mis-sold, to make a claim.
Do now, for later-life.
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