Workers are being offered £100 payments to encourage their friends and colleagues to cash in valuable final salary pensions.
In what’s being described as a feeding frenzy, financial advisers are also running so-called pension parties to lure workers into ditching their gold-plated retirement plans.
At these events, which are similar to traditional home-sales parties – attendees receive a pitch from a financial adviser to encourage them to transfer their guaranteed incomes into a pension they can dip into at any time.
Trap: Workers are being offered £100 payments to encourage their friends and colleagues to cash in valuable final salary pensions
Hosts are paid between £70 to £100 to round up friends and family to encourage them to take part. In some cases, advisers analyse the workers’ paperwork at the meeting and start to process the deal immediately.
Two thirds of pension schemes have final salary black holes, according to figures from industry lifeboat, the Pension Protection Fund.
Fears are growing that tens of thousands of former workers – many at collapsed or struggling firms such as Carillion and British Steel – are being conned into making irreversible mistakes.
They are being told that their final salary schemes, which pay a guaranteed sum that rises in line with inflation each year, are under threat of closure and payouts could be cut.
They’re also told that by transferring they can access enormous lump sums from age 55, rather than waiting for an annual income when they retire. Meanwhile, the adviser typically receives thousands of pounds in fees.
The City watchdog is concerned that savers are not being warned that they are sacrificing financial security for high-risk investments that could leave them out of pocket.
Pension dilemma: Final salary schemes are expensive to run, so companies are offering huge payouts to savers who leave
Now, the Financial Conduct Authority has launched a probe into all firms advising on final salary pensions. Since 2015, more than 200,000 people have opted out of final salary plans, taking an estimated £50 billion, according to actuarial firm Mercer.
Final salary schemes are expensive to run, so companies are offering huge payouts to savers who leave. Investment firm Tilney says workers can get 50 times their pension income – equal to an £850,000 cash lump sum in exchange for an annual income of just £17,000.
But the decision is irreversible – and dangerous. You lose a guaranteed inflation-linked income, as well as payouts for your spouse after your death.
Your nest egg is typically pushed into a self-invested pension that depends on stockmarket fluctuations. Those who withdraw too much – or invest poorly – also face their pot running dry. Advisers may also charge 5 per cent, a fee of £25,000 from a £500,000 transfer.
Hundreds of members of the British Steel pension scheme have been persuaded to ditch the scheme by financial advisers.
The City watchdog’s probe into final salary pension transfers found that in around half of cases the advice to leave funds was unsuitable or unclear.
One firm, Albion Pensions, wrote to people on its mailing list offering £100 payments if friends complete a pension transfer. Paperwork seen by Money Mail says: ‘Refer a friend and earn £100 for everyone who completes a pension transfer.’
The website adds that it will enable customers to use pension freedoms rolled out in 2015. These let you spend as much of your savings as quickly as you want.
Pension decision: Fears are growing that tens of thousands of workers – many at collapsed or struggling firms such as Carillion and British Steel – are being conned into making irreversible mistakes
The firm is run by 46-year-old Matthew Fraser Whiting. Entries on Companies House state that he used to run a PPI claims firm called Claim 2 Gain which was dissolved last year.
He says that his company transfers savers’ money to regulated funds and insurance firms for a 5 pc fee. ‘We do not feel this is encouraging anyone to complete a transfer,’ he says.
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In some cases in Port Talbot, Wales, former British steel workers are being paid to host parties at their homes.
Al Rush, a financial adviser with Echelon Wealthcare, who is originally from the Port Talbot area and is investigating scores of dubious transfers, says: ‘The workers are referring each other to the advisers. They get £70 to £100 sent to them by cheque.
‘Port Talbot is just the tip of the iceberg. It’s a feeding frenzy.’
One Port Talbot steel worker told Money Mail how he had gathered with 15 other colleagues in a Swansea pub for a presentation from a financial adviser who had promised to allow them to release cash from their pensions.
The 51-year-old steelworker, who does not want to be named, also revealed the adviser promised them £30 fees if they referred a friend. He said the adviser told him it would take ten hours work and three letters to approve the pension transfer for a £1,500 fee.
The father-of-one says he regretted the decision after learning his wife no longer had access to the death benefits. He says the firm also charged him £23,000 to access the cash.
Gary Smith, of Tilney, says: ‘It can take over a month to go through the advice process for a pension transfer. Offering incentives like parties and cash for referrals is inappropriate.’
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