All employers must now offer a workplace pension to their employees. This wasn’t historically the case, but many employers offered pension schemes to their staff as an employee benefit, usually with contributions made by the employer on the employee’s behalf.
Final salary (or defined benefit) schemes
Perhaps the best known type of workplace pension (otherwise known as an occupational pension scheme) is the “final salary” scheme. The employee would make a contribution from their salary each month (such as 5%) which secured a period of service within the pension scheme for however long they were making those contributions. That length of service would then be used to work out what proportion of their salary they’d be entitled to as a pension at the date of retiring (or when they left the employer).
A quite common type of final salary scheme is a “1/60ths” scheme . This means that, for example, if someone was a member of that scheme for 20 years, they’d accrue a year’s membership for each year they made contributions – so 20/60ths of their final salary which would then be paid as a pension when they came to retire.
These types of scheme are often referred to as being “gold plated” – unlike “money purchase” schemes (see below), there’s no investment risk for the employee. The benefits are guaranteed and worked out by an application of the numbers of years’ service to the salary at the date of leaving.
And legislation was also introduced in the 1990s to ensure that pension funds were held separately from company assets – this meant that even if an employer ceased to trade or otherwise got into financial difficulties, the pension assets would be safe.
Money purchase (defined contribution) schemes
An alternative to the final salary scheme is the money purchase scheme. This is where an employee’s contributions are invested in one or more pension funds – usually a mixture of stocks and shares and other lower risk types of investment such as government bonds and cash, to balance out the investment risk.
The eventual pension benefits will depend in large part on how those pension funds have performed up to retirement. If that pension pot is then swapped for a regular pension (an annuity), the actual amount of pension received would be determined by the size of that pension pot and the “annuity rate” – so how much a pension provider is willing to pay on a yearly basis for the rest of your life, as a percentage of the pension pot. This annuity rate takes into account your age, state of health, and other factors such as whether you’d like a spouse’s pension to be paid after you die.
Although they don’t have the same guarantees as final salary schemes, membership of workplace money purchase schemes can still be very beneficial. The employer often also makes contributions on the employee’s behalf – perhaps matching the contributions paid by the employee. They also tend to have low fees and charges, due to the economies of scale in administering lots of similar policies. This means more of your money is able to be invested.
The Pension Review
In 1994, the industry regulator at the time established the “Pension Review” amid concerns about the mis-selling of personal pension policies. The review looked at sales of personal pension policies between 29 April 1988 and 30 June 1994.
If a consumer wanted their pension policy to be considered as part of the Pension Review, they had to apply before the deadline of 31 March 2000. But if the sale of a personal pension wasn’t included in the Pensions Review – for example, because you believe you didn’t receive an invitation or because you bought your policy after June 1994 – we may still be able to consider a complaint about it.
If a complaint was looked at under the Pension Review, it’s unlikely that we’d look at it again – the review was designed to deal with any mis-selling issues there and then, and to provide finality for both customers and financial businesses.
But if you think there was something wrong with the way a business did the review, or you think you should have been included, but weren’t, we might be able to look at it. Time limits apply to bringing a complaint to us, though. And as the Pension Review finished more than six years ago, we’d need to be satisfied that you’ve only reasonably had cause for concern within three years of raising your complaint with the financial business.
Types of complaints we see
The complaints we see relating to workplace pensions are where you may feel that you’ve been:
- unsuitably advised to start a personal pension plan instead of joining your workplace pension scheme
- unsuitably advised to opt out of the workplace scheme in favour of a personal pension plan
- unsuitably advised to transfer your benefits from a workplace pension (usually from a final salary scheme) to a personal pension plan or a Self Invested Personal Pension (SIPP)
You may also feel that you didn’t receive an invitation to request a review under the Pension Review, but are concerned that you were given unsuitable advice about a personal pension you took out in the period covered by the review.
We can only look at a complaint about a workplace pension if it’s about the way it’s been administered by a business regulated by the Financial Conduct Authority (FCA), or if it and its investments have been advised upon by an FCA-regulated business. All other complaints about workplace pensions - for example about the way a final salary scheme has been administered or about payments made by that scheme - are dealt with by the Pensions Ombudsman. We’ll let you know if that applies to your complaint.
How to complain
You need to talk to the business first so they have the chance to put things right. They have to give you their final response within eight weeks for most types of complaints. If you’re unhappy with their response, or if they don’t respond, let us know.
Find out more about making a complaint.
What we look at
We can look at complaints about advice to not join, opt out of, or transfer a workplace pension scheme in favour of a personal pension plan outside of the Pension Review dates. And in practice, although they don’t fall under the terms of the Pension Review as such, we would look at those complaints - and the way any loss should be compensated - in a similar way.
We’ll look at what advice you were given and whether it was suitable for you at the time, taking into account your circumstances and financial objectives. If we decide you were given unsuitable advice, we might uphold the complaint. And the financial business which gave you the advice would then need to do a specific form of calculation to assess whether any loss had occurred.
There may also be instances where we conclude that the either not joining, opting out, or transferring away from your workplace pension was suitable, but the investments chosen within a personal pension or SIPP weren’t.
Opt-outs and non-joiners
We’ll look at whether the business which advised you knew, or should reasonably have made further enquiries, about any workplace pension scheme that was available to you – even if you thought that no scheme was available or that you weren’t eligible to join it.
We’ll take into account the individual circumstances of each case. But, in general, because of the financial benefits of joining a workplace pension, we’d usually expect the business to have recommended that you join a workplace pension scheme where one was available.
Financial businesses sometimes tell us they have records of their customer saying they 'may not stay with their current employer for much longer'. Whether it was therefore appropriate for someone to join their employer’s scheme would depend on several factors, including how soon they were planning to leave, and whether the next employer offered a pension scheme. If they did, it’s not likely to have been worthwhile starting a personal pension for a very short space of time.
When deciding whether the advice to transfer your workplace pension funds was suitable or not, we’ll take into account:
- the number of years’ service you’d accrued in the workplace pension
- what other pension provision you had in place
- if moving to a new employer, what type of pension scheme they operated
- how much your personal pension or SIPP would need to grow by to match the benefits you’d given up at the time of the transfer (also called the ‘critical yield’) - or for advice given since 1 October 2018, the cost of buying the same income you’d have received from the workplace pension
- your attitude to investment risk
- the period of time left from the transfer until your retirement
- whether there were compelling reasons for the transfer which outweighed the advantages of staying put, such as a need to retire early but no flexibility to do so in the workplace scheme
- whether the consequences of the transfer and the loss of guaranteed benefits (in the case of final salary schemes) were explained to you.
Putting things right
If we think your complaint should be upheld, and reinstating your pension benefits in the workplace scheme isn’t possible, we’ll tell the business to calculate whether you’ve suffered a financial loss. They do this by comparing the value of the benefits you would have had with the workplace pension against those you actually have in the personal pension.
If you’ve suffered a financial loss, we’ll tell the business to pay financial compensation to your pension plan, or if not possible, directly to you. We might also make an award for any trouble and upset you’ve been caused.
Detailed advice for businesses
Businesses can find out more in our detailed information about transfers from workplace pensions and the pensions review.