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PENSION PAIN
Thousands of savers hit by transfer failure that could DELAY retirement – are you affected?
We explain how to find out if you're affected
THOUSANDS of savers in major pension providers may be hit with a delay to retirement due to a huge transfer mix-up, The Sun has learned.
According to sources at three major pension firms, some of the UK's top providers have been failing to tell customers that they would be giving up a "protected pension age" by switching pension schemes amid confusion over who is responsible.
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The Normal Minimum Pension Age (NMPA) is currently 55, but is due to rise to 57 from April 6 2028.
Anyone retiring after this date will now not be able to start taking their pension until they are 57 rather than 55.
But some pension scheme members have a "protected pension age", which means they will keep the right to take their pension at 55 if they want to.
Aviva, Scottish Widows and L&G are among some well-known providers with this benefit.
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If a customer transfers out of a scheme with this protected pension age, the scheme they are transferring to may decide to honour it - but it doesn't have to.
So, those who do transfer without realising they are giving it up could end up having to wait to take their pension for two extra years.
Financial advisers should flag a protected pension benefit to their clients. You are required to take financial advice if the pension you're transferring from has safeguarded benefits attached worth over £30,000.
But around a third of savers made a pension transfer without taking financial advice last year, according to pension firm My Pension Expert.
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Pension firm insiders have told The Sun that until recently, the system which facilitates transfers has not been able to pass on information about protected pension ages.
So, non-advised customers have been reliant on pension schemes to manually check and flag this - but this hasn't always happened.
It's understood there is now an industry-wide "sweep up" exercise ongoing to inform pension schemes if they have taken customers who previously had this benefit.
Why haven't customers been told?
Pension schemes haven't had a specific requirement to notify customers that they may lose this protected benefit in the past, although experts say schemes should have done so anyway.
But firms should now be notifying customers about this benefit under consumer duty rules introduced last year, according to the City watchdog, the FCA.
The FCA said under its consumer duty it expects relevant information to be provided to the customer around giving up a valuable benefit.
The Sun understands that in the FCA's view, the burden of responsibility for ensuring a customer is aware of this now falls with whichever firm is asked to start the transfer - be it the scheme customers are leaving or the receiving scheme.
Experts say the failure to notify customers could also be down to confusion around whether a protected pension age of 55 is a "benefit" in the same way as other benefits.
Typically savers should be told if they're giving up a benefit attached to their pension, but the protected pension age of 55 came about as a result of accidental mis-wording in some schemes.
Most schemes say members can take their funds at the NMPA, but some schemes had said "55" instead, which meant they had to keep this - but it's understood this was never technically a benefit.
Becky O'Connor, director of public affairs at PensionBee, said: "It's important that when you think about transferring a pension from one provider to another, you understand the features and benefits of the plans you are transferring to and from and how they differ.
"This includes ensuring that you are not giving anything up that could be valuable to you such as a protected pension age."
It's important to note that 55 is a relatively early retirement. You now can't take the state pension until you are 66.
How to track down lost pensions worth £1,000s
Why do some schemes have a protected pension age?
At the moment, you can start taking your own pension from the age of 55, but from 2028 this age will rise to 57.
The Government decided to change this to reflect that people are living longer and therefore need their retirement savings to last longer.
When the Government announced its intention to increase the NMPA to 57 from 55, it came to light that a number of major pension firms had drafting the wording around the age that people could take their pensions as "55" rather than the "NMPA".
As a result, they had to stick with 55, which resulted in them creating a protected pension age benefit.
Sources say the lack of information provided between pension schemes up to now could be down to this issue with the wording.
Even though some schemes have created this protected pension age, it was never meant to exist and so isn't classed as a "benefit" in the same way as other benefits, which could explain why it has not been being flagged.
Could flagging this benefit slow down my transfer?
Insiders added that the burden on firms to try to flag this benefit is actually now slowing down pension transfers - which is already a problem for many savers.
The Sun revealed last month that pension transfer customers are facing long delays due to complex legislation introduced to help prevent scams.
One insider said their firm has had to create additional delays for customers wanting to transfer to them after discovering that their previous pension schemes had not been flagging the loss of protected pensions.
"I can't help but feel that this just adds unnecessary complexity and sludge to pension freedoms," they said.
"It seems it's gone unnoticed for some time, but now that we have seen this, we've had to send transfers back and put further ones on hold until we've gone through a process to inform customers."
What does this mean for savers? Our consumer champion's view
IN the grand scheme of things, having to wait two more years to take your pension isn't a huge delay - especially when we're talking about the difference between 55 and 57, a very early age to start spending your retirement cash.
But it is widely expected that scheme members should be made aware if they would lose any benefits by switching pension providers, and a protected pension age should be no exception.
It should ultimately be up to savers to make decisions about their own finances and they can't do this if they aren't fully informed.
The FCA itself has now made it very clear it would expect this type of benefit to be flagged as part of its consumer duty.
On the flip side, firms should not be using a protected pension age as another reason to delay transfers unnecessarily.
We are already seeing the DWP's "amber flag" legislation is holding up transfers that are deemed to be generally low-risk, frustrating savers trying to legitimately transfer their cash.
Pension providers need to ensure they are making customers aware of their benefits without unnecessarily dragging out the process.
Laura Purkess, Consumer Champion & Senior Consumer Reporter, The Sun
What if I've given up a protected pension age?
If you're not sure whether you have a protected pension age, ask your pension scheme to find out for you.
A financial adviser can also help find out if you have one.
If you have already given one up, unfortunately you can't get it back - but you can check if the scheme you transferred to honoured the benefit when you switched.
If you have one and want to transfer anyway, assess whether it's worth keeping one.
This is dependent on your circumstances and whether you would be likely to take a pension early, such as if you are in poor health.
"Most pension policies today will have a Normal Minimum Pension Age that rises from 55 to 57 in 2028, as intended," Ms O'Connor said.
"Something like a protected pension age of 55 is unusual. While it would be worth having to some people, for those who are not planning - or don't need - to access their pension earlier than 57 from 2028, it might not make much difference."
If you have multiple pensions, having a protected pension age for one of them doesn’t mean they will all have this benefit, so check for each individual scheme.
What is a pension transfer?
A pension transfer is where you move one of your pensions to another provider, or merge pension pots together.
Pension providers are large firms which look after your pension and manage it on your behalf.
They will do things like invest it with the aim of growing your pot over your lifetime so you have more money for retirement.
In exchange, they charge a small fee.
Savers might switch their pensions from one firm to another because the new scheme has lower fees, or because they want to keep all of their pensions in one place.
You need to track old pensions down in order to combine them together.
You can do this using any paperwork you can find and giving it to a new pension provider of your choosing - they will do the rest of the work for you.
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If you aren't sure where your old pensions are, you can use services like the government's Pension Tracing Service online or by calling them on 0800 731 0193.
Pension firm AJ Bell also has a service to locate old pension pots, visit its website to get started.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all.
- Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.