Don't get caught out by this pension scandal

Another pension scandal is brewing which has already cost pension savers millions. Find out how to guarantee it doesn't happen to you.

For years the pension industry has been fraught with scandal. Think Robert Maxwell, Equitable Life or the government’s tax raids on our pension schemes.

These scandals - along with numerous others - have seen pension savers lose out to the tune of billions. And, as if all that wasn’t bad enough, more trouble is brewing.

Recent question on this topic

Peter Cook asks:
Why do Pension companies get to keep the fund after you die. Surely the fund belongs to the policy holder.
- iPension answered "Hi Peter This is a standard basis for occupational pension schemes although there are variations...."
- SoftwareBear answered "Welcome to the big scam that is the world of Pensions. You need a personal pension for a start..."
- Read more answers

Yet another pension scandal

This time it’s all about pension switching advice. The regulator, the Financial Services Authority (FSA) has just published its latest findings after a follow-up review into the quality of advice.

Despite originally investigating poor advice back in 2008, more firms will now be required to revisit past business, and deliver over £150 million in redress to pension savers.

The FSA’s main concerns at this stage include the dubious practice of charging additional but entirely unjustified fees, and the failure to investigate clients’ existing pension arrangements before making a recommendation to move to a new scheme. What's more, the regulator has concluded that even more action is required for the industry to clean up its act.

Blimey! That’s pretty serious stuff.

Pension savers are faced with a real dilemma here: Pension switching can be a very complex decision which probably shouldn’t be seen through without the help of a financial adviser. But then, so-called professional advice isn’t always reliable as the FSA’s investigation has proved.

Going it alone

Pension switching is essential if you’re stuck with an underperforming scheme. In fact, it’s vital for keeping your retirement planning on track.

You could cut the adviser out of the loop altogether, and make the decision yourself. If you feel confident taking that route, I’ll talk you through it in a moment.

After that, I’ll explain how to make sure any advice you do receive is suitable.

Pension switching: how to decide

If you have a sneaking suspicion your pension isn’t up to scratch - or worse - your first step is to read Why you should transfer your pension. This article offers a step-by-step guide to help you decide whether switching your pension really is worthwhile.

Join our Get ready to retire goal.

Related goal

Get ready to retire

There are a lot of things to think about as you get closer to your retirement. But the early you start to prepare, the better.

Do this goal

Remember this isn’t a decision to be taken lightly. You’ll need to be absolutely sure you won’t be losing any valuable benefits your existing pension arrangements guarantee. You’ll also need to make sure there are no exit penalties if you decide to switch. And of course, this whole exercise only makes sense if you switch to a better pension in the end.

If none of this sounds particularly easy, that’s because it isn’t. If you have a very old pension scheme, for example, it can take weeks before you’ll even get a valuation. But don’t let obstacles like these put you off. The alternative - sticking with a plan that performs consistently badly for decades - is far worse.

Is the advice right?

The findings of the FSA’s investigation are utterly scandalous - there’s no question about that. But that doesn’t mean the majority of advisers won’t provide you with a decent recommendation for a reasonable fee. So, don’t assume they all want to get one over on you, or simply don’t know what they’re doing. Here are my top tips on how to choose a good pension adviser:

Word of mouth - get a recommendation for an adviser from someone you know and trust. If they have had a really positive experience, hopefully you will too. Insist on seeing the same adviser if you can since ability can vary significantly within the same firm.
Check the adviser is fully authorised by the FSA and independent. All of this should be explained to you in your first meeting with them - which incidentally should be free. Don’t shell out for anything other than recommendations. Make sure you find out how your adviser will be remunerated during this meeting too.
Find out how long the IFA has been established. Experience matters. Don’t appoint a newly-qualified IFA.
Check their qualifications. In this case you need an IFA with appropriate exams in pension advice under their belt. If you choose someone who has gained the Advanced Diploma in Financial Planning (AFPC) - which includes the AF3 Pension Planning qualification - then you’ll know they have a high level of technical knowledge, and are less likely to give you poor advice.
A good pension adviser should look at your attitude to risk and your personal circumstances as well as reviewing your existing pension arrangements. If none of this happens, you should smell a rat.
Make sure you understand the recommendations you receive fully before giving your IFA the go ahead.
And finally, find out how regularly these recommendations will be reviewed and evaluated to ensure your adviser is adding value. After all, pensions which seem to be performing well now can deteriorate in the future. It may be necessary to repeat the switching process later on.

More: The hidden fees that will destroy your pension | Turn your pension into a million pounds