Fears over public servants who quit their gold-plated pensions

Thousands of NHS workers, teachers, firefighters and police officers face a worse pension after being forced to give up gold-plated pensions.

In March 2014, Chancellor George Osborne unveiled new pension freedoms to give people more control over their retirement savings.

The changes meant that they no longer had to buy an annuity, providing them with a lifetime of income, but were able to manage their money as they saw fit.

At the same time, he announced that from April 6, 2015, workers would be banned from leaving public sector pension plans.

The changes allowed for a short period of time for scheme participants to make a decision, leading to the risk of hasty decisions. So-called defined benefit plans or final pay plans are usually more generous than defined contribution plans, where employees build up a pot of money, as the former offer employees a guaranteed lifelong income based on their salary and years of service.

But unlike defined contribution pensions, there is no central fund for most public sector plans.

The cost of paying pensions in retirement is instead covered by taxpayers, and the government feared that if too many people were tempted to move out of these schemes, it would cripple public finances. So they gave employees only 12 months to make a decision.

Sir Steve Webb, former Minister for Pensions and partner at consultants LCP, explains: ‘This deadline created an opportunity for officials to move out of their defined benefit plans before the ban on such transfers was introduced.’

Indeed, Money Mail’s damning numbers show that this period saw a huge spike in the number of public sector workers seeking to move out of final pay plans.

The city watchdog has repeatedly warned that giving up these pension rights is not in the best interest of most savers. These schemes protect against rising inflation and protect retirees from falling stock markets.

It means those who left could be much worse off now when they retire. And the decision is irreversible.

Worse, some public sector workers have lost huge sums of money after being convinced to put their money into sham investments. Because many people are only now realizing the consequences, this has led to a wave of complaints.

Since 2018, the Financial Services Compensation Scheme (FSCS), which intervenes when financial companies fail, has paid out nearly £6 million to members of the public sector who have been wrongly advised to leave their schemes.

This includes nearly £3 million for NHS workers, £2.2 million for teachers and £390,000 for police officers. And these numbers are only expected to rise. Compensation claims have also been capped at £85,000 meaning many still have huge amounts of money.

‘On claims from the NHS where just under £3million was paid, the actual calculated total loss for those consumers was just under £9.5million,’ explains an FSCS spokesperson.

Experts accuse the government of failing to protect retirees by failing to discuss pension reforms.

Simon Harrington, head of public affairs at industry association PIMFA, says: ‘Issues arising from final pay transfers would have been identified during the initial consultation period.’

Tom Selby, chief of retirement policy at AJ Bell, adds, “Feeling rushed is never ideal when making life-changing decisions.”

Figures provided exclusively to Money Mail by Teachers’ Pensions, which are responsible for the implementation of the Teachers’ Pension Scheme, show a 10 percent increase in inquiries about transfers to personal pension plans between February and April 2015.

This is despite being widely regarded as one of the best schemes, with an employer contribution of 23.68 percent today.

According to official data, between 2014 and 2015, about 1,500 participants in the deferred pension scheme – whose teachers have left the profession but are still entitled to pension benefits – have been transferred. That was more than 500 more than in the previous year.

The NHS Business Authority, which manages the NHS pension scheme, received more than 6,600 pension transfer requests between January and April 2015, an increase of almost 2,500 compared to the same period the year before.

The Firefighters’ Pension Scheme said it spent £8.5 million on transfers between 2014 and 2015, a 25 per cent jump from the previous year.

Scottish Widows also reported at the time that it had seen a number of financial advisers removed from government schemes before the April 6 deadline.

Sir Steve says: ‘The turbulent market conditions in recent years have caused members to regret their decision and this may help explain the recent surge in complaints.

“During the same period, regulators began to question the quality of some transfer advisories given, and bills for compensation are starting to rise.”

Since 2018, the FSCS has upheld claims against at least 56 failed financial consultancies facilitating teacher pension transfers and 29 failed NHS pension transfer companies.

If a regulated financial company helped you transfer a public sector pension and has since gone bankrupt, you may be able to file a claim with the FSCS.

Visit fscs.org.uk/making-a-claim/ or call 0800 678 1100. To find out if a company is regulated, check the Financial Conduct Authority website (register.fca.org.uk).

If the company you used is still active, file a complaint directly. Should it fail to respond or reject your claim, please contact the Financial Ombudsman Service (financial-ombudsman.org.uk/consumers/expect/compensation).

A Treasury spokesperson said: “Government pension plans provide clear guidance on the benefits of membership.

‘The government is working closely with regulators to ensure that this market works well for businesses and consumers, and that the advice is of high quality.’

moneymail@dailymail.co.uk