Tens of thousands of pensioners with "gold-plated" final salary retirement pots are receiving unsuitable or unclear financial advice, regulators warned today.
Defined benefit pension schemes can be cashed in and – following the introduction of pension freedoms in April 2015 – a lump sum can be withdrawn tax-free.
Lower-for-longer interest rates have made cashing in final salary schemes more attractive by driving up their value.
The Financial Conduct Authority (FCA) said today that the number of people transferring defined benefit schemes into person pensions "has grown significantly over the past year". Regulators have reviewed so-called transfer values and the advice provided to those cashing in their pensions.
Some 80,000 transfers are estimated to have taken place in the last year and advice is required on all transfers where the transfer value is greater than £30,000.
The FCA's review concluded 17 per cent of transfers received advice deemed "unsuitable", with 36 per cent of people getting unclear guidance.
‘The starting point for anyone with a defined benefit pension should be to assume it is best left as it is," said Hargreaves Lansdown senior pension analyst Nathan Long.
"Transferring means giving up a promised income in return for the uncertainties of investing in the stock market. Transferring away could be investigated further if you are in poor health, are single or have concerns about the employer that provides your pension."
These types of pension transfer are very complicated and require very specialist advice. If you want to investigate a transfer further seek out an experienced adviser.
The FCA consulted on the pension transfer market over the summer, which included plans to introduce a rule requiring all transfers to be subject to financial advice.