THOUSANDS of savers in major pension providers may be hit with a delay to retirement due to a huge transfer failure, 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.
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.
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 they don’t have to.
MORE ON PENSIONS
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 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.
Pension firm insiders have told The Sun that some of these savers have been relying on the scheme they are transferring to manually find out whether they have a protected pension age, and some will have fallen through the cracks.
Most read in Money
They say the lack of information provided between pension schemes could be down to issues around the wording of the NMPA before it was changed.
Historically, most schemes have said customers could start taking their pension at the NMPA – but some said members could start drawing down from 55 instead.
This meant those schemes had to keep the age at 55 even though the NMPA had changed – but this wasn’t technically a “benefit”, which is why it may not have been being flagged.
Pension schemes also 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.
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.
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.
One insider told The Sun that this could explain why the benefit is not being flagged during some pension transfers – as it was never actually meant to exist so isn’t being picked up during the process.
Could flagging this benefit slow down my transfer?
Sources 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.
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.
READ MORE SUN STORIES
Pension firm AJ Bell also has a service to locate old pension pots, visit its website to get started.
Questions to ask before transferring your pension
IF you’re thinking about transferring your pension, here are the key questions to ask, according to the Money Advice Service.
Questions to ask your current provider:
- Can I transfer? There can be restrictions on which pensions you can transfer.
- What is the ‘transfer value’ of my pension? If it’s the same as your pot value, it’s unlikely you’ll be charged a fee when you transfer.
- What fees will I have to pay?
- Will I lose the right to take out my money at a certain age? This is called a ‘protected pension age’.
- Will I lose any special features, e.g. a guaranteed annuity rate?
- Will I lose the right to take a tax-free lump sum of more than 25% of my pension? This is called a ‘protected tax-free sum’.
Questions to ask your new provider:
- Do I apply to transfer through you or my current provider?
- Are there any fees for transferring in, e.g. set-up fees?
- Do I have to make regular payments into the new pension?
- What investment funds and levels of risk do you offer? You may need help from a financial adviser with this.
- What options do you have for when I want to take my money out?
https://www.thesun.co.uk/feed/
Laura Purkess
