The Financial Conduct Authority (FCA) has determined that thousands of people could receive compensation if they were wrongly asked to switch from their defined benefit (DB) pension to a defined contribution (DC) scheme.
The Guard has written to 2,677 people who have stepped over from a DB pension since the introduction of the pension exemptions in 2015 after learning that four consulting firms – which have since gone bankrupt – have given them “inappropriate advice”, which puts them at risk run from getting worse in retirement.
Claims against poor retirement counseling that have since ceased operations can be paid up to £ 85,000 under the Financial Services Compensation Scheme (FSCS). The regulator therefore urges these individuals to contact them to see if they can claim compensation.
Here which one? investigates who the letters were sent to, how to spot bad advice, and how to raise whether you are affected.
Who Received Bad Pension Advice?
Most systems now allow you to transfer your DB-Pot to another pension plan. But the rules require anyone wishing to transfer funds to seek financial advice from a regulated advisor if the “transfer value” – the amount your provider is offering you to transfer from your DB system – exceeds £ 30,000.
However, the FCA recognized that under a fee model often referred to as “contingent charging,” advisors may have offered poor advice in order to get paid, which means that a customer pays for advice only when they do makes a transfer.
Last year it banned conditional fees after discovering cases where people were advised to switch from valuable DB systems when it wasn’t in their best interests, but it still identifies cases where people might be before the ban was in place have been badly advised.
The FCA did not disclose the names of the four consultancies it believed were providing “inappropriate advice” before going bankrupt. But it said which one? it has sent letters to three groups:
- Individuals who have received advice that, after review, has been found to be inappropriate
- People were given advice that was not reviewed by the FCA before the company went into liquidation
- Individuals who have received advice from counselors who did not gather sufficient information prior to making a recommendation, which makes the suitability of the counseling unclear.
Find out more: How do the transfers from DB to DC pensions work?
How do I know if I have received bad advice?
The FCA says that transitioning from a DB system is not the right option for most people, especially if: it is your primary or only pension; You are dependent on income during retirement; Your DB schema meets your needs; or you have dependents who may prefer some of the DB pension features such as guaranteed income over a lump sum. So, if your advisor has urged you to make a decision to transfer when it is not in your best interests, you may be able to seek compensation.
The regulator has created an “advisory auditor” who determines what advice you should have received.
It is important to note that the conditional fee ban does not prevent scammers from exploiting your finances. So make sure you are dealing with a regulated financial advisor by checking the FCA’s registry. Be especially careful if:
- The contact was initiated by a cold call, as there is a high probability that it was fraud
- The counselor did not consider your circumstances before making recommendations
- The terms were not explained to you. These should always be highlighted to you to ensure that you are fully aware of the process
- The consultant was not clear about possible fees.
Learn More: How To Spot A Scam
How to Complain About Bad Financial Advice
In June 2020, the FCA urged companies to write to their customers if they encountered problems, advising them that they may have received mis-sold pension transfer advice.
If you have not been contacted by your pension provider or the FCA and believe you have received poor advice, here’s what you need to do.
Step one: contact the company who advised you
Contact the counselor in writing as soon as possible so that you have a record of what has been said.
The FCA says that regulated financial services companies must respond with a “final response letter” with their findings within eight weeks and determine if your complaint was successful.
Second step: Complain to the Financial Ombudsman Service
If you are not satisfied with the result, you can contact the Financial Ombudsman Service, an independent dispute resolution service between financial services companies and their customers.
They will ask the company to explain what they think happened and then decide whether they will uphold your complaint.
You must contact the ombudsman service within six months of receiving a definitive response letter as they may not be able to provide you with any further assistance.
When the company is no longer in business
If you think you received poor transferring advice and the company that advised you is no longer in business, you may be able to apply through the FSCS which may reimburse you up to £ 85,000 if it concludes that you have suffered financial loss from the poor advice.
Remember, making a claim is not limited to advice on pension transferring. You may also be able to receive compensation if you feel that you have been advised incorrectly on a number of complex financial products, such as investments and insurance.
How to choose a financial advisor
It is really important to look around when looking for a financial advisor. A comparison page is a good place to start: Unbiased and VouchedFor are the biggest. You can use their filters to create a shortlist based on areas of expertise and customer ratings.
We recommend arranging meetings with at least three IFAs so that you can decide which one offers you the best service for your needs and the best value for money.
In most cases, you will be charged a fee for the consultation, but this may vary by consultant and it can be difficult to calculate the cost. When Which? anlaysed100 IFA websites in April 2021 we found 89 were not showing prices online.
