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Final salary pension warning: rogue advisers target steelworkers' savings

Sam Brodbeck
The steelworks in Port Talbot has been saved, but many savers now want to move their money out of the pension scheme - Athena Picture Agency

Steelworkers risk being exploited by financial advisers preying on highly valuable "final salary" pensions, experts are warning.

Over 100,000 members of the British Steel pension scheme, one of Britain's largest, have until December to choose what happens to their savings after sponsor Tata Steel offloaded the plan as part of a radical deal agreed with the Pensions Regulator.

The deal followed Tata Steel's u-turn a year ago where it agreed not to sell all its British operations and keep open the sprawling Port Talbot steelworks in south Wales.

As previously reported by Telegraph Money, savers have to decide whether to stick with the existing British Steel scheme, which will fall into the Pension Protection Fund (PPF), or moving to an entirely new arrangement.

However, thousands of current and former steelworkers have instead requested to transfer out of "final salary" arrangements entirely.

As with other private sector pension plans, savers can swap the guaranteed final salary income for a transfer worth  a multiple of the annual income they would otherwise be paid.

For the British Steel scheme, which appears to be using multiples of between 24 and 26 times, a pension set to pay £30,000 a year could be valued at £800,000 if transferred.

A deal was struck when the British Steel pension scheme threatened the survival of the steelworks Credit: Getty

Transferring in this way entails giving up valuable, inflation-proofed income for life. Instead, savers bear the risk of falling investment returns or the possibility that their money will runt out.

The most recent figures show more than 7,000 savers in the British Steel scheme requested a "transfer value" between April and September, which resulted in 700 transfers out of the scheme worth more than £200m.

Experts fear savers are exposed to opportunistic advisers.

Under government rules savers must take regulated financial advice before transferring a pension worth £30,000 or more. But fees vary dramatically. Most advisers charge an upfront percentage as well as ongoing fees, meaning savers can end up with bills running into many thousands of pounds.

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Some advice firms only charge if a transfer goes ahead, creating an incentive for advisers to recommend moving the pension.

Retired engineer Stefan Zaitschenko, 60, helped set up a Facebook group for British Steel members. He said the demand for transfers outstripped the supply of local advisers.

"We're seeing members being quoted fees of £21,000 to transfer an £800,000 pension. The average transfer is around £300,000 but some are as high as £1.2m," he said.

Mr Zaitschenko feared members are being put under pressure to transfer their money quickly.

"There's a perfect storm of conditions to force people out. A lot of the reputable advisers have so much business they're not seeing anyone else and transfer values are at a peak so they're feeling the pressure to do something now."

He warned that many workers did not realise that once the transfer had been made, the responsibility to ensure funds lasted long enough fell "on their own shoulders".

Considering the sums involved, we see a considerable transfer of value from member’s pension rights to the advisory community and on to pension providers

Henry Tapper, founder of the Pension PlayPen, visited Port Talbot and spoke to steelworkers. He was concerned over the "a low level of understanding of cost and value and a confusion about where the advice was coming from".

Mr Tapper said typical fees were 2pc upfront and 1pc ongoing. Investment fees would be levied on top of this. For a £1m pot that would equate to £20,000 plus a minimum of £10,000 a year.

He added: "Considering the sums involved, we see a considerable transfer of value from member’s pension rights to the advisory community and on to pension providers."

Final salary members wishing to transfer should first check that the adviser they speak to is a "pension transfer specialist", and is regulated by the FCA. 

Having an adviser manage your money after a transfer will be very helpful for some people, but is not mandatory. Likewise, you can transfer your pension even if an adviser recommends you don't – the rules only state that you must have taken advice.

sam.brodbeck@telegraph.co.uk