Thousands of NHS workers, teachers, firefighters and police officers face a poorer retirement after they were rushed into giving up gold-plated pensions.
In March 2014, Chancellor George Osborne unveiled new pension freedoms to give people more control over their retirement savings.
The changes meant they no longer had to buy an annuity, which provides an income for life, but could manage their money as they saw fit.
Gold-plated: So-called defined benefit or final salary schemes are typically more generous than defined contribution schemes
At the same time, he announced that, as of April 6, 2015, workers would be banned from transferring out of public sector pension plans.
The changes created a short window in which scheme members could make up their minds — leading to the risk of hasty decisions.
So‑called defined benefit or final salary schemes are typically more generous than defined contribution schemes, where employees build up a pot of money, as the former provide employees with a guaranteed income for life based on their salary and years of service.
But unlike defined contribution pensions, there is no central fund for most public sector schemes.
The cost of paying pensions in retirement is instead covered by taxpayers, and the Government feared that if too many people were tempted to transfer out of these schemes, it would cripple the public finances. So they gave workers just 12 months to make a decision.
Sir Steve Webb, former pensions minister and partner at consultants LCP, explains: ‘This deadline created a window of opportunity for public servants to transfer out of their defined benefit arrangements before the ban on such transfers was implemented.’
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
Indeed, damning figures obtained by Money Mail reveal there was a huge spike in the number of public sector workers seeking to transfer out of final salary pension schemes during this period.
The City watchdog has repeatedly warned that giving up these pension rights is not in most savers’ best interests. These schemes offer protection against soaring inflation and retirees are sheltered from falling stock markets.
It means those who left could now find themselves much worse off in retirement. And the decision is irreversible.
Even worse, some public sector workers have lost huge sums after they were convinced to move their money into sham investments. With many people only now realising the consequences, it has led to a surge in complaints.
Since 2018, the Financial Services Compensation Scheme (FSCS), which steps in when financial firms go bust, has paid out almost £6 million to public sector members wrongly advised to leave their schemes.
This includes nearly £3 million for NHS workers, £2.2 million for teachers and £390,000 for police officers. And these figures are only expected to climb. Compensation claims are also capped at £85,000, which means many are still hugely out of pocket.
‘On NHS claims where just under £3 million was paid, the actual calculated total loss for those consumers was just under £9.5 million,’ a FSCS spokesman explains.
Experts accuse the Government of failing to protect pensioners by neglecting to consult on the pension reforms.
Simon Harrington, head of public affairs at trade body PIMFA, says: ‘Issues arising from final salary pension transfers would have been flagged during the initial consultation period.’
Tom Selby, head of retirement policy at AJ Bell, adds: ‘Feeling rushed is never ideal when making life-altering decisions.’
Compensation: Since 2018, the Financial Services Compensation Scheme has paid out almost £6m to public sector members wrongly advised to leave their schemes
Figures provided exclusively to Money Mail by Teachers’ Pensions, which is responsible for administering the Teachers’ Pension Scheme, show a 10 per cent spike in enquiries about transfers to personal pension arrangements between February and April 2015.
This is despite being widely considered one of the best arrangements, with an employer contribution rate of 23.68 per cent today.
Around 1,500 deferred pension scheme members — where teachers have left the profession but are still entitled to pension benefits — transferred out between 2014 and 2015, according to official data. This was over 500 more than in the previous year.
The NHS Business Authority, which manages the NHS Pension Scheme, received more than 6,600 pension transfer requests between January and April 2015 — an increase of almost 2,500 compared to the same period the year before.
The Firefighters’ Pension Scheme said it spent £8.5 million on transfers between 2014 and 2015, a 25 per cent jump compared to the previous year.
Scottish Widows also reported at the time that it had seen some financial advisers moving customers out of public sector schemes before the April 6 deadline.
Sir Steve says: ‘More turbulent market conditions in recent years may have led members to regret their decision and this may help explain the recent rise in complaints.
‘Over the same period, regulators have started to question the quality of some transfer advice given, and hefty bills for compensation are starting to be seen.’
Since 2018, the FSCS has upheld claims against at least 56 failed financial advice firms which facilitated Teachers’ Pensions transfers and 29 failed firms for NHS pension transfers.
If a regulated financial company helped you transfer out of a public sector pension and has since gone bust, you may be able to make a claim with the FSCS.
Visit fscs.org.uk/making-a-claim/ or call 0800 678 1100. To find out if a company was regulated, check the Financial Conduct Authority’s website (register.fca.org.uk).
If the firm you used is still active, complain to it direct. Should it fail to respond or reject your claim, contact the Financial Ombudsman Service (financial-ombudsman.org.uk/consumers/ expect/compensation).
A Treasury spokesman says: ‘Public service pension schemes provide clear guidance on the benefits of membership.
‘The Government works closely with the regulators to ensure this market works well for firms and consumers, and that advice provided is of high quality.’