Advice checker: defined benefit pension transfers

Find out if the advice you received is right for you, and what to do if you think it wasn’t. If you received unsuitable advice you could be entitled to compensation. 

What to do if you received advice about transferring your defined benefit pension

Our assessment of pension transfers between 2015 and 2019 highlighted that some advisers may have given poor advice to consumers to transfer out of a defined benefit pension scheme into a defined contribution pension scheme.

This may be relevant to you if both of the following apply:
•    you transferred out of a defined benefit pension scheme after April 2015
•    an FCA regulated firm advised you to transfer

If you transferred from a defined benefit (DB) pension, sometimes called a 'final salary pension', to a defined contribution (DC) pension after April 2015, you can use this page to help you decide if you have received poor advice and what you can do about it.

Features of DB and DC schemes

When you transferred your DB pension, you gave up a guaranteed lifetime income that usually increases each year in line with inflation for a DC pension where you invested your transfer value to build up a personal pot of money. When you die, you can say who you want to receive your remaining pension pot. If you’d stayed in your DB scheme, your partner may have continued to receive a pension at a reduced rate after you die.

In the DB scheme, you could have chosen to give up some of the income so that you could receive a tax-free lump sum. In the DC scheme, you can choose how to use the pot for allowable tax-free lump sums and retirement income. You may have already accessed your pot. But unless you choose to buy a guaranteed lifetime income, known as an annuity, there are no guarantees that your pension pot will let you maintain your chosen income for the rest of your life. This is because the value of your pension pot is affected by changes in the value of the assets you invest in – such as shares, bonds and property – and it moves up and down in value.

In the DB scheme, the employer and trustees of the scheme were responsible for making sure there was enough money to make your payments. But now, you or your adviser are responsible for managing the pot until it runs out. You need to pay charges if you choose to take advice on how to invest. You also need to pay charges to the pension scheme operator and investment managers. In your DB scheme, you paid no charges.

Check your DB transfer advice

If you agree with any of the following statements, you may be more likely to have received poor advice.

Statements

Your adviser did not ask you for all of the following:

  • information about you and your family, and how much income you need to support your family during your retirement
  • information about you and (if relevant, your spouse/partner’s) employment, current income and spending, tax position, entitlement to state pension or state benefits
  • information about your health (and partner’s health, if relevant)
  • your and your spouse’s other pensions, investments and debts, and any dependency on state benefits (and partner’s details, if relevant)
  • your priorities and spending plans for your retirement
  • how much risk you felt comfortable with and the extent to which you were prepared to accept a reduced lifestyle in retirement if investments performed poorly
Your adviser did not check your knowledge and understanding of DB and DC pension schemes, and their risks and benefits, or explain these so you could understand what you were giving up.
Your adviser did not consider how you could achieve the retirement you wanted, including early retirement, by keeping your DB scheme.
The pension you transferred was your only or largest guaranteed pension, and you had few other assets to support yourself in retirement.
Your adviser recommended you transfer and purchase a similar guaranteed lifetime income (an annuity), even though you were in average or good health.

Your adviser did not show how you could meet at least your essential income needs such as paying bills and rent from your DB scheme for your lifetime because they focused on one or more of the following:

  • giving you flexibility and control of your pension
  • maximising the death benefits payable in the event of your death
  • helping you achieve early retirement
  • helping you take a larger tax-free lump sum
You did not believe the DB scheme employer would continue in business, and your adviser did not show how your retirement needs might be met if the DB scheme was taken over by the Pension Protection Fund.
You are now in a scheme, recommended by your adviser, where the charges you pay are much higher than you expected.
Your adviser recommended you transfer to maximise the potential for good investment returns and did not show you how your income might reduce, not keep pace with inflation or not last your lifetime if investments returns were poor or charges were high.
You are now in a scheme, recommended by your adviser, where your funds are invested in hotels or student accommodation, storage pods, leisure developments, parking schemes, forestry, precious metals/stones or other unusual investments.

Your adviser recommended, in writing, that you should not transfer but:

  • hinted you should do so anyway
  • did not explain the value of your existing DB scheme
  • did not explain the risks of a transfer
  • gave you a list of the risks of proceeding with a transfer against advice without making these personal to you

If you do not agree with any of these statements then it is more likely you received good DB transfer advice. 

If you agree with at least one statement above, then it is possible that you may have received poor DB transfer advice and you might have a valid complaint. 

If you were always going to transfer, no matter what your adviser said about the disadvantages, it is less likely that you have a complaint.

What to do if you think you have received poor DB transfer advice

You should first complain directly to the firm that gave you advice. The firm must respond within 8 weeks to tell you whether you have been successful and are owed some money, or to explain why they need more time to look into your complaint. Once the firm have looked at your complaint, they will send you a final response letter with their findings.

If you are not happy with the final response you receive from the firm (or you do not get a response within 8 weeks) you can complain to the Financial Ombudsman Service on 0800 023 4567. You should do this within 6 months of hearing back from the firm.

If you decide to complain, this is free, and you can do it yourself. A claims management company (CMC) may contact you and offer to help make your DB transfer advice complaint. You do not need a CMC to help you argue your case as the ombudsman service will investigate independently. The ombudsman’s claim experts will support you at every stage of your claim and help you submit the right information. If you decide to use a CMC, they are likely to charge you for this service.

If you’ve received poor DB transfer advice and the company that advised you is no longer in business, you can submit a claim to the Financial Services Compensation Scheme (FSCS), who may be able to compensate you up to £85,000 if it determines you have suffered a financial loss as a result of the poor advice you received. FSCS is a free service set up by parliament and is funded by the financial services industry.

If your complaint was successful, you received compensation, and you are taking ongoing advice on your investments, you can still consider at any time whether to continue with ongoing advice. If you choose to continue with ongoing advice, you can decide which adviser to use for this service. Whether or not you take ongoing advice in a DC scheme, you should regularly monitor your investments to make sure they meet your retirement needs.

Video: defined benefit pension transfer process explained (17 minutes)

This will be helpful for those who have transferred out of their defined benefit pension and are unclear whether they received good quality advice. It will also be of interest to those who are considering transferring out of a defined benefit pension scheme and want to understand what the process should look like before they start. It is not intended as guidance for firms.