Understanding Defined Benefit Pension Transfer Claims - Your rights and how to bring a claim for compensation

For many people, a Defined Benefit pension has for a long time been central to retirement planning. Guaranteed to provide a lifetime income they are often regarded as a safe, secure means of guaranteeing long-term financial security in retirement. However, many individuals in recent years have opted to transfer their DB pensions into Defined Contribution arrangements after receiving financial advice that failed to consider their best interests. This has led to numerous Defined Benefit Pension Transfer Claims, where the individual is claiming misadvice.

What is a Defined Benefit Pension?

A DB plan is also commonly referred to as a final salary scheme. It promises a lifetime annual pension directly indexed with your salary at retirement and the number of years worked up to that date. Other types of pensions do not give any guarantee about income, whereas a DB scheme offers to pay a safe, inflation-linked income for all eternity. It's one of the most attractive types of pension, primarily because the uncertainty surrounding the market's performance does not apply: you will always know what you are going to get paid at the end of each month.

Why Swap a Defined Benefit Pension?

In the last few years, many people have chosen to transfer their DB pension into a Defined Contribution pension scheme. Here are a few reasons why:

• Flexibility: DC pensions can give you much more freedom as to how and when you might access your funds.
• Inheritance planning: DB pensions usually terminate at the time of your death or your spouse's death, whereas DC schemes you might be able to leave your pension savings to be paid out to your relatives.
• Lump-sum withdrawal: The possibility of having available at least some sort of cash sum from your pension may attract others, and this is not normally provided with DB schemes.

These will undoubtedly be attractive reasons, but a transfer from a DB scheme carries substantial risks.

The Risks of Leaving a Defined Benefit Pension

It is a lifetime decision to roll out of a DB pension, and the risks are serious. Here are the serious risks:

• Loss of Guaranteed Income: Once you roll out, you forfeit guaranteed lifetime income that a DB pension provides. You are now dependent on market performance, which cannot be well predicted.
• Higher financial risk: The value of your DC pension pot depends entirely on how you have invested your money. So if the overall market does not perform well, you will be left with much less than you expected.
• High fees and charges: Most DC schemes carry high fees attached to them, so that your pension savings will get siphoned away eventually.
• No inflation protection: DB pensions commonly involve annual increases to maintain the value against inflation. In a DC scheme, you will be in charge of this particular risk.

To add to this, many individuals were not properly educated on these risks; due to this, there have been instances where people have been mis-sold a pension transfer.

Were You Mis-Sold Your Pension Transfer?

If you were transferred your Defined Benefit pension but have not been appropriately informed of the risks, then there is a case of Defined Benefit Pension Transfer Mis-selling. Even more common causes of mis-sold pension transfers are the following:

• Unsuitable advice: If there was failure on the part of your advisor in considering your personal circumstances or failing to explain well the risks involved, then probably, you would be misled with unsuitable advice.
• Lack of explanation on alternatives: An effective advisor should have discussed other options with you, not take the direct route to transferring.
• Risk warnings: Chances for the long-term effects of dropping a DB pension should have been clearly explained to you, informing you of the risks that are linked to market volatility as well as the value of giving up a guaranteed income.

Failure to provide clear transparency regarding fees: If your adviser didn't make the costs associated with the transfer in question clear, that too finds a place in the list of grievances.

How to Claim Against a Defined Benefit Pension Transfer

If you feel you were misadvised, well, you are in luck. You can claim compensation. Here's how to go about it:

1. Documentation: You should assemble all relevant documentation related to your pension transfer that incorporates all the advice you received, transfer paperwork, and statements.
2. Contact the adviser or firm: The first step would be to contact the financial adviser or firm who advised you to transfer in the first place. They may have provided redress if they can establish, with some justification, that you were misadvised.
3. Send it to the Financial Ombudsman Service : If the firm doesn't respond or rejects your complaint, you can have it referred to the Financial Ombudsman Service, an independent company dealing with complaints between a consumer and a financial business.
4. Check if the business that had advised on an investment has a presence in the Financial Services Compensation Scheme: If the firm that had advised you is declared insolvent, then you are qualified to get some amount of money back from the FSCS. It covers claims if a firm cannot pay.

Conclusion

Transferring a Defined Benefit pension results in long-term implications over your financial future. This may entitle you to some form of compensation for that benefit and, if poorly advised or not fully apprised of the risks, could even result in a Defined Benefit Pension Transfer Claim. This would allow you to mitigate losses at least and protect your retirement. The bottom line: You should consult a professional before any decision regarding your pension; you should never think it's too late when questioning the actual interest of your advice.