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Pension savings take a lifetime of consistent hard work to build up so it may be surprising to hear that you do not have as much control over your pot as you may have thought.
Unlike a bank account, your pension cannot be transferred from one type of scheme to another at the touch of a button. To move out of a pension that contain any guarantees, you must first take advice from a regulated financial adviser if it is worth more than £30,000.
A string of scandals involving people ditching high quality defined benefit pensions in favour of higher risk plans has seen the City watchdog tighten the rules further.
Mark Hodson, 60, from Bristol, said the process of taking advice to transfer his defined benefit pension into a more flexible scheme had left him “fallen among thieves”.
Mr Hodson planned to take £222,000 out of a long-dormant pension held with his first employer to pay into a personal pension, taking his total fund to just over £500,000.
He said the transfer was a “no-brainer” as his old employer’s pension would pay only £4,000 a year, albeit of guaranteed, inflation-linked income.
However, Mr Hodson must seek regulated financial advice on his transfer as his pension is worth more than £30,000.
He said: “The best price I’ve been quoted to get a signed form to the pension fund saying I am advised to do what I’m going to do anyway is £3,000.
“One charlatan wanted £7,500 to read back my own advice to me.”
Mr Hodson said he acknowledged that advisers had to take on professional liability but said he would pay no more than £300 for the service.
Financial advisers have a “government-sanctioned monopoly”, he warned. This came as advisers have been fleeing the pension transfer market following pressure to increase standards from industry authorities and increasingly unaffordable insurance premiums.
This has left savers with fewer options when seeking advice.
A spokesman from The Pensions Regulator said that any decision to transfer a pension pot that has taken a lifetime to build is a very serious one so it is important pension scheme members avoid making hasty decisions, which they may later regret.
Transfers from defined benefit schemes to defined contribution schemes are "unlikely to be in the best interests" of most members, although there are certain circumstances where they may be appropriate, the regulator said.
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Those transferring large sums of money must seek advice from a fully-authorised adviser so they understand what they stand to lose before it is too late.
The spokesman said: “It is important members access the appropriate independent financial advice to help them understand the risks and implications of transferring to a DC pension and potentially giving up a valuable level of predictability in retirement income and protections from the Pension Protection Fund."
City watchdog, the Financial Conduct Authority has stepped up its efforts to stamp out poor advice. Firms will no longer be able to offer so-called “contingent” charging models, whereby they are paid only if a customer decides to transfer their money. This means that clients will have to pay the sum regardless of whether the transfer goes through or not.
The FCA previously found that 69pc of all advice resulted in a recommendation to transfer, although transfers were only thought to be suitable around half the time.
There were approximately 400,000 transfers from DB schemes and a total of £47bn transferred out between April 2017 and 2019, according to TPR estimates.
Have you been charged an inordinate sum for financial advice regarding your pension? Tell us in the comments section below
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