Pensions seem constantly to be in the news, usually making bad headlines. Scandals are typically of two types: defined-benefit schemes breaking their pension promises, and individual savers in all types of scheme being scammed out of their money.
Although big news when it happens, most defined-benefit schemes do not fail and, where they do, there is a compensation scheme to help. The Pension Protection Fund (PPF) (Directory, p 32) may take over a scheme where the employer running it has become insolvent. Members already retired get 100 per cent of their pension; others will receive 90 per cent. PPF pensions used to be paid only up to a cap that varied with age. However, a court ruled that this broke age-discrimination legislation, so the cap has now been removed (and compensation is being paid by the PPF to existing members who had been affected by the cap). When PPF pension payments start, pensions built up since 1997 are increased each year in line with inflation up to a maxi-mum of 2.5 per cent a year, but any part of the pension built up during earlier years does not increase.
There is also a Fraud Compensation Fund (Directory, p 31) that may take over pensions where company scheme members lose out because of fraud or negligence. This applies to both defined-benefit and defined-contribution company schemes.
Personal pension schemes and annuities are covered by a different compensation scheme, the Financial Services Compensation Scheme (FSCS). This can help where the provider has become insolvent owing you money, provided the firm is authorized to operate. You can check a firm’s authoriza-tion by consulting the Financial Register (Directory, p 8). Compensation is generally up to a maximum of £85,000. This limit is low relative to the amount you may have saved, but pension savings should be ring-fenced and kept separate from the provider’s own finances to keep your money safe. Where you are receiving income from an annuity, the compensation is unlimited.
While pension scams have been around for decades, they have increased significantly in recent years. The Pensions Regulator (Directory, p 8) and Financial Conduct Authority (FCA) (Directory, p 8) publish guidance on their websites on how to protect yourself against being scammed. They highlight five common tactics that should set your alarm bells ringing: contact out of the blue (whether by phone, email or other means); promises of high and/or guaranteed returns; free pension reviews; access to your savings before age 55; and pressure to act quickly.
Since January 2019, it has become illegal for firms to cold call you about pensions. The only pension calls that are legitimate are from author-ized firms where you have specifically given your consent to be contacted. If you are contacted in any other circumstances, treat it as a scam call and hang up.
Information, guidance and advice about private pensions
If you find it difficult to understand how your pension scheme works, you are not alone! Pensions are notoriously complicated and governments do like to keep changing the rules.
If you have a query or if you are concerned in some way about a work-place pension, you should approach whoever is responsible for the scheme in your organization. If the company is large, there may be a special person who looks after the scheme on a day-to-day basis. This could be the pensions manager or, quite often, it is someone in the human resources department. In a smaller company, the pension scheme may be looked after by the company secretary or managing director. With a pension you’ve arranged for yourself, your first port of call for any queries or concern should be your pension provider. If you need more general information or you are confused by the response from your company scheme or pension provider, MoneyHelper has a wealth of information (Directory, p 9), and can provide guidance through its telephone helpline.
Guidance is not the same as advice. If you do not feel confident making pension decisions on your own, consider paying for professional financial advice (see Chapter 1).
Other help and advice
MAKING A COMPLAINT
If you are unhappy with the way a personal pension scheme has been marketed or sold to you, you should first complain to the firm involved. Authorized firms are required to have a complaints procedure that you can use. The firm should reply within eight weeks. If it doesn’t, or if you’re unhappy with its response, you can take your complaint to the Financial Ombudsman Service (FOS). This is an independent, free-to-use service. It can order the firm to put matters right, which may include compensation up to a maximum of £415,000 (since 1 April 2023).
In most other cases, whether your complaint concerns a workplace pension or a personal pension scheme you’ve arranged for yourself, you should again give the scheme provider a chance to resolve the matter first. If you don’t get a reply or you are not happy with the response, you can take your complaint to the Pensions Ombudsman (Directory, p 32).
KEEPING TRACK OF YOUR PENSIONS
In addition to understanding your current pension scheme, you may also need to chase up previous schemes of which you were a member. These pots are left behind when workers move between jobs, particularly at the start of their careers. As retirement approaches, many face problems tracking down small-sized funds, or simply don’t think to look for them. However, there is a free, government service, the Pension Tracing Service, which can help you trace your old pensions. You can use the service by phone, post or online (Directory, p 32).
From the schemes you are in touch with, you will normally receive a regular statement showing your possible pension when it starts. With government encouragement, the pensions industry is working on creating a ‘pensions dashboard’ which will let you view all your pensions in one place.
This should make it easier to keep track of your pensions, spot if an old pension is missing and estimate how much income you may have in retire-ment. Many different organizations will offer you this dashboard service – for example, your bank, your employer, your pension providers, advice agen-cies or an app you download to a smartphone. Pension dashboards are now due to be available on or before October 2026. To learn more, visit the Pensions Dashboards Programme (Directory, p 32).