Defined benefit pension transfers

A defined benefit (DB) pension – also known as a final salary pension – is an occupational pension scheme that pays you a guaranteed income when you retire. How much money you get when you retire is based on your salary and how long you’ve worked for your employer, not how much you’ve paid into your DB pension.

We may be able to pay you compensation if you were given unsuitable advice to transfer out of your DB pension to a different pension and you lost money as a result. The adviser must have gone out of business for us to be able to help. It also must have been regulated by the Financial Conduct Authority (FCA) at the time it gave the advice.

Examples of other pension schemes you may have been advised to transfer your DB pension to include personal pension plans, self-invested personal pensions (SIPPs), qualifying recognised overseas pension schemes (QROPS) or Section 32 pension plans.

How do we calculate DB pension transfer advice claims?

When we assess your claim to see if you’re eligible for compensation, we gather information about your DB scheme and evidence of the advice you received to transfer out of it. We’re trying to work out if your financial adviser gave you unsuitable advice and didn’t satisfy its ‘duty of care’ under the rules in place at the time of the advice (which can differ from today's rules).

If the evidence we see shows the advice you received was unsuitable, we can pay you compensation. The next step is to work out how much money you're owed.

To calculate this, we gather up-to-date transaction histories and valuations of your current pension scheme (the one you were advised to transfer to). We then compare the benefits you’ve lost from your DB pension with the benefits in your current pension to find the difference between them. This difference tells us how much compensation we can pay you, up to our £85,000 compensation limit for pension advice (set for us by the FCA and the Prudential Regulation Authority).

Product and adviser charges are capped at 1.25% in line with FCA guidance. 

We then get in touch to tell you our decision and if applicable, how much compensation you'll receive. 

Put simply, we’re aiming to work out how much your DB pension would have been worth if you hadn’t transferred out of it and, therefore, how much money you've lost by moving to a different pension.

The British Steel Pension Scheme (BSPS)

You can see the full details about BSPS claims here.

BSPS was a complex DB pension scheme with many different segments, or levels, of benefits. A steelworker could build up a variety of segments at various points in their time at British Steel and all of these segments would have increased in value at different points in time and at varying rates.

This means that each steelworker’s circumstances are unique and even though their pensions might initially appear similar, when we delve into the details, we often find that the different levels of benefits they accrued mean their pensions were worth very different amounts. This means that any compensation they’re due for the advice they received to transfer out of the BSPS will also vary.

The FCA has confirmed a separate consumer redress scheme for people who were advised to transfer out of the BSPS between 26 May 2016 and 29 March 2018. This scheme started on 28 February 2023. If you've not received a decision from us or did not receive redress from your IFA by this date, you are likely to be part of the scheme. Visit the FCA’s webpage to find out more. 

Redress guidance for DB pension transfer advice claims

Pension transfer advice claims are complex, and we follow guidance from the FCA on how to calculate any compensation (also called redress) that's due. During August and September 2022, the FCA consulted on changes to this guidance. The FCA has now published the outcome of this consultation, and the new guidance came into force on 1 April 2023. 

I put my claim on hold due to the consultation, what happens now?
Some customers chose to put their claims on hold while the FCA consultation took place. These claims were taken off hold during April 2023, and customers were sent a decision using the new guidance. 

Why does compensation vary for people who were part of the same scheme?

It's common for people who transferred from the same DB pension scheme to receive different amounts of compensation for their claims, even if their circumstances appear alike on the surface.

Some common factors that can affect how much compensation you're eligible for:

    • The amount of money you transferred, known as a ‘Cash Equivalent Transfer Value’. 
    • What kind of pension you transferred to, and how that pension has performed since you transferred. 
    • How far away from retirement you were when you transferred. 
    • How the market is expected to perform in the future, which could affect your pension investment. 
    • Whether you received an enhancement when you transferred your pension. 
    • Economic assumptions around future inflation and interest rates. 

Possible claim outcomes

While we can’t guarantee the outcome of a claim until we've finished investigating it, we may be able to pay you compensation if you can prove you lost money because of the unsuitable advice you were given to transfer out of your DB pension.

Some common reasons why we can't pay compensation:

  • We haven’t seen any evidence of the advice you were given.
  • There’s no evidence you lost money directly as a result of the advice you were given.
  • Our calculations actually show you've made a gain, so your current pension is worth more than it would have had you remained in your DB pension.  
  • There are rules around the dates you can make a claim – so your claim could fall outside the eligible dates.

Find out more about our protection for pensions.

Who else could help?

If you think you might have received unsuitable advice to transfer your pension and the adviser is still trading, you'd firstly need to take up your complaint with the firm who gave you the advice. If that doesn't work, the next step would be to contact the Financial Ombudsman Service.

While we protect the advice you received to transfer out of your pension, our protection doesn’t include DB pension schemes themselves. The Pension Protection Fund protects these. The Pensions Regulator also protects the UK’s workplace pensions.

Beware of pension scams

Unfortunately, scammers can convince people to transfer their life savings to schemes that sound attractive and offer high returns but are actually scams. People can lose their entire pension and then face an uncertain future.

Please also be aware of scams claiming to help you get your compensation. FSCS is free to customers, and we will never ask you to send us money. 

Even if you consider yourself to be financially savvy, it's still important to be aware of scammers and the methods they employ. Read more about pension scams on The Pensions Regulator website.

For more information about scams and how to protect yourself, please visit our scams and fraudsters page.