Thousands of NHS workers, teachers, firefighters and police are facing a worse retirement after being forced to give up gold-plated pensions.
In March 2014, Chancellor George Osborne unveiled new retirement freedoms to give people more control over their retirement savings.
The changes meant they no longer had to buy an annuity, which provides income for life, but they could manage their money as they saw fit.
Gold-plated: so-called defined benefit or end-of-career salary plans are generally more generous than defined contribution plans
At the same time, he announced that from April 6, 2015, workers would be prohibited from leaving public sector pension schemes.
The changes created a short window in which plan members could make up their minds, risking hasty decisions. So-called defined benefit or end-of-career salary schemes are generally more generous than defined contribution schemes, in which employees build up a kitty, because the former provide them with a guaranteed income for life based on their salary and their years of service.
But unlike defined contribution pension schemes, 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 exit these schemes it would cripple public finances. So they gave the workers just 12 months to make a decision.
Sir Steve Webb, former Pensions Minister and partner at LCP Consultants, explains: “This delay has created a window of opportunity for civil servants to exit their defined benefit schemes before the ban on such transfers is implemented. .”
Indeed, damning figures obtained by Money Mail reveal that there has been a huge increase in the number of public sector workers seeking to exit final salary pension schemes during this period.
The city’s watchdog has repeatedly warned that giving up those pension rights isn’t in the best interests of most savers. These plans offer protection against soaring inflation and retirees are protected from falling stock markets.
This means that those who left could now find themselves in a much worse situation in retirement. And the decision is irreversible.
Worse still, some public sector workers lost huge sums after being convinced to shift their money into fictitious investments. While many people are only now realizing the consequences, this has led to an increase in complaints.
Since 2018, the Financial Services Compensation Scheme (FSCS), which kicks in when financial firms fail, has paid nearly £6million to public sector members wrongly advised to leave their schemes.
This includes nearly £3million for NHS workers, £2.2million for teachers and £390,000 for police officers. And these numbers are only expected to increase. Claims for compensation are also capped at £85,000, meaning many are still hugely out of pocket.
“On NHS claims where just under £3m was paid, the actual calculated total loss for these consumers was just under £9.5m,” says a spokesperson for the NHS. FSCS.
Experts accuse the government of failing to protect pensioners by neglecting to consult on pension reform.
Simon Harrington, head of public affairs at trade body PIMFA, said: ‘Issues relating to final salary pension transfers are believed to have been flagged during the initial consultation period.
Tom Selby, head of retirement policy at AJ Bell, adds: “Feeling rushed is never ideal for making life-changing decisions.”
Compensation: Since 2018, the Financial Services Compensation Scheme has paid nearly £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% increase in inquiries about transfers to personal pension schemes between February and April 2015.
This is although it is widely regarded as one of the best arrangements, with an employer contribution rate of 23.68 percent today.
About 1,500 members of the deferred pension scheme – where teachers left the profession but are still entitled to pension benefits – transferred between 2014 and 2015, according to official data. This was over 500 more than the previous year.
The NHS Business Authority, which operates the NHS Pension Scheme, received more than 6,600 pension transfer applications between January and April 2015, an increase of nearly 2,500 on the same period the previous year.
The firefighters’ pension scheme said it spent £8.5m on transfers between 2014 and 2015, a 25% increase on the previous year.
Scottish Widows also reported at the time that it had seen some financial advisers withdraw clients from public sector schemes before the April 6 deadline.
Sir Steve says: “More turbulent market conditions in recent years may have caused members to regret their decision, which may explain the recent increase in complaints.
“During the same period, regulators have begun to question the quality of some transfer advice being given, and hefty compensation bills are starting to roll in.”
Since 2018, the FSCS has upheld claims against at least 56 bankrupt financial advisory firms that facilitated teacher pension transfers and 29 bankrupt firms for NHS pension transfers.
If a regulated financial company helped you get out of a public sector pension and has since gone bankrupt, you may be able to file a claim with the FSCS.
Go to fscs.org.uk/making-a-claim/ or call 0800 678 1100. To find out if a company was regulated, check the Financial Conduct Authority website (register.fca.org.uk).
If the company you used is still active, file a complaint directly with them. If they do not respond or reject your request, contact the Financial Ombudsman Service (financial-ombudsman.org.uk/consumers/expect/compensation).
A Treasury spokesman said: ‘The public service pension schemes provide clear guidance on the benefits of membership.
“The government is working closely with regulators to ensure that this market works well for businesses and consumers, and that the advice provided is of high quality.”
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