Transfers from Defined Benefit schemes under the spotlight

From time to time IFAs, when carrying out a pension review for a client, will come across an obvious case of mis-selling. While pension transfers into a SIPP and investments in esoteric and unregulated products are obvious, pension transfers from Defined Benefit schemes should also be a cause for concern.

On 30 March 2021 the FCA stated “It remains our view that it is in the best interest of most consumers to stay in their Defined Benefit pension.”

Having established a trigger point for pension mis-selling quite naturally the IFA will want to do everything possible to assist their client to recover their losses.

Paul Higgins, a solicitor who runs Pension Justice, a law firm that helps its clients recover money lost to pension mis-selling, says: “Even if a client is advised to transfer their Defined Benefit scheme to blue-chip standard funds , a client might still be eligible to make a claim for compensation. A Defined Contribution pension is dependent upon the performance of the Stock Market whereas a Defined Benefit scheme is not and has guaranteed benefits attached to it. We are living in uncertain economic times. The Stock Market is volatile, there is a threat of war in Ukraine, inflation is on the rise, taxes are increasing and we are only just recovering from the Covid pandemic. All of these factors will have an impact upon the performance of funds that are invested in the Stock Market and could result in a pension investor suffering a significant loss if they have transferred from a Defined Benefit scheme to a Defined Contribution scheme”.

Penson Justice has successfully pursued claim to the FSCS on behalf of a client against Hyde Financial Management (known initially as Imperial Wealth Management Ltd, authorised by the FCA). Hyde Financial Management advised Mr M.K. that it was in his best interests to take his money out of his extremely valuable and secure British Steel Defined Benefit pension scheme and open a personal pension with Prudential.

On the advice of Imperial Wealth Management Ltd Mr M.K. transferred £373,555.01 from his Old British Steel Defined Benefit pension to his personal pension with Prudential. Following the transfer Imperial Wealth Management Ltd received an initial commission of £5,603.33.

Pension Justice was able to recover £54,408.69, which was the maximum recoverable in this case. Fortunately, Mr M.K. did not lose his entire investment because since transferring his British Steel Pension to Prudential, the Prudential pension had increased in value.

Paul from Pension Justice also said “We have recently had similar successful results with various other clients who were advised to transfer away from their Defined Benefit schemes. Mr M was persuaded to transfer out of his extremely valuable Defined Benefit pension with the Johnson Matthey retirement scheme. Mr M was advised by Philip Pryke of Capital & Income Solutions Limited to transfer his Defined Benefit pension from the Johnson Matthey scheme to a Defined Contribution pension scheme with Royal London which was the worst advice possible. Despite this Philip Pryke paid his company Capital & Income Solutions Limited the sum of £6,500.00 in commission. We subsequently made a claim against Capital & Income Solutions Limited to the FSCS and recovered the sum of £53,841.71 compensation on his behalf. We are currently working on other cases where clients have transferred out of the British Steel Pension Scheme. Our advice to IFAs is to check with new clients who have a personal pension as to whether they took money out of a Defined Benefit scheme as there could be a potential case of mis-selling”.

Pension Justice is extremely experienced in obtaining financial redress for its clients and has recovered millions of pounds on behalf of their clients. They often work with IFAs, who refer clients after discovering that previous advisers have given poor advice.

“We frequently have referrals from IFAs where clients have lost their entire pension after being given bad advice by a previous adviser. In most cases, we have been able to obtain significant compensation for clients” says Paul.

Any initial advice that Pension Justice gives clients is entirely free and without any obligation. If they accept instructions, they work on a No Win, No Fee basis so that a fee is only payable in the event of a successful outcome.

Under current regulations, an IFA that enters into an Agency Agreement with a firm of solicitors can refer up to twenty-five cases in any 3-month period and be paid a referral fee. Referring IFAs would add value to their relationship with their client and take comfort from the fact that their client was in good hands. Any compensation recovered could then be invested on behalf of the client, thus preserving the relationship between the IFA and the client. Any referral fees could be remitted to the client or applied to enhance the services provided by the IFA to the client.