As depositors are prohibited from cashing in gold-plated pensions

Savers are being banned from switching their ‘final salary’ pensions into cash after the amount they can get by transferring their pension savings fell to a record low.

The amount you can get by transferring from a gold-plated defined benefit pension that pays a regular income has fallen by 42 per cent, triggered by former chancellor Kwasi Kwarteng’s botched mini-budget last month, which sent government bonds soaring. yields known as branches.

A final salary pension of £775,112 in January 2022 with £30,000 a year is now £447,175, according to analysts XPS Pensions.

Similarly, a final salary pension of £258,926 at the start of the year, paying £10,000 each year, has fallen to £149,954.

Final salary or defined benefit pensions pay an income in retirement based on years of service and your salary. In contrast, defined contribution pensions are like a pot of cash that you can dip into whenever you want after 55.

And with some families struggling to make ends meet, more people are tempted to use whatever spare cash they have.

Some pension schemes have temporarily suspended transfers after the mini-budget sent financial markets into a tailspin, says Mark Barlow of XPS Pensions. This means that many savers have lost the ability to flexibly access their savings.

Moving from a defined benefit pension to a more modern defined contribution pension offers much more flexibility, but involves more responsibility and risk.

Those who switch give up their guaranteed income in favor of a sum of money that is typically invested in the stock and bond markets.

From age 55, they can withdraw as much of their savings as they want, whenever they want.

Transfer prices generally fall when gold yields rise, as this means that final salary pension costs become more expensive for firms.

“I imagine most pension schemes would have suspended them at the end of last month because prices have moved so dramatically,” says Mr Barlow.

“A lot of people will be alarmed to see the value of their savings drop so much in a few months.”

Record low pension: Final pension of £775,112 in January 2022 with £30,000 a year now worth £447,175

David Brooks of consultancy Broadstone says the transfer price could remain suspended for several weeks.

“All of this is unprecedented – we’ve never seen transfer values ​​move at this rate before,” he adds.

Young pensioners are the most affected: 55-year-olds lose up to half of their lump sum, he adds.

The sharp drop reflects the fact that investors can earn much more from government bonds than they could a year ago.

Kerry Lindsay, of pensions consultancy Hymans Robertson, says there is a real risk that pension schemes are showing transfer values ​​that are immediately out of date due to large market swings.

Borrowing prices fell on Monday on Rishi Sunak’s appointment as investors were reassured about rising debt.

The yield on the ten-year bond fell from more than 4 percent to 3.75 percent.

Bug: The amount you get from your gold-plated defined benefit pension transfer has plummeted by 42% due to former chancellor Kwasi Kwarteng’s ill-fated mini-budget

Pension funds must comply with transfer values ​​within three months of being issued, meaning savers could be paid more than they are due if values ​​continue to fall.

“Generally, a value transfer can be suspended for up to three months without breaching disclosure requirements.

But it can lead to a build-up of quotes down the road,” adds Lindsay.

Louise Kiely, 54, from Staffordshire, was shocked to discover a quarter of the value of her pension had disappeared in a matter of weeks.

She was told she could receive a lump sum payment of £202,485.01 if she transferred her NatWest pension of £6,894 a year on 3 June 2020. But by August 2022, the amount had fallen by 23 per cent to £155,946.64.

The sharp drop scuppered her plans to cash in her pension. She says: “I can’t believe how much my transfer fee has gone down. It’s probably in my best interest to leave it alone.’

Those who choose to stick with their defined benefit pension will see no change in their promised annual pension income.

“It just goes to show how much markets can fall and I can now see the value in staying in a scheme that guarantees payouts from 60,” adds Louise.

She says she will monitor her pension and reconsider cashing in when her value recovers.

But she may have to wait a long time. Simon Torrey, financial adviser at SRC Wealth Management, warns that the level may never fully recover.

“Values ​​were at a record high last year and will take some time to recover. We can talk for a few years, if ever,” he says.

Full access: Defined contribution pensions are like a pot of cash you can dip into whenever you want after 55

However, those who transfer can potentially get their money back by investing when stock markets recover. “Stock markets have taken a hit this year, with some down as much as 20 percent, so anyone getting into the market now can buy at discounted prices.”

The recent upheaval in the pensions industry could also increase the risk of fraud, warns Mr Brooks.

“Headlines about pensions becoming insolvent and people losing their savings will be a haven for fraudsters. They will use it when they call vulnerable pensioners and tell them to transfer before it’s too late,” he says.

The threat of pension fraud has increased, with a record 97 per cent of transfers made in September flagged as suspected fraud.

According to XPS Pensions, the number of pension fraud alerts has almost doubled since January, when only one in two was suspected.

After the government introduced new rules to tackle pension fraud last year, pension funds have the power to refuse transfers if there are red flags and there are fears customers are handing their savings over to criminals.

While such fraud remains a real risk, the number of red flags may be artificially high due to the new framework introduced last November.

Most of the concern was foreign investment.

Anyone transferring a defined benefit pension worth more than £30,000 should seek regulated financial advice.

Retirement savers should be on the lookout for fraudsters, and there are a few warning signs.

According to The Pensions Regulator, scammers tend to be articulate and financially literate, with long reading materials and credible websites.

They usually deceive the most vulnerable sections of the population with attractive offers of high-risk investments, such as real estate abroad, parking, storage or renewable energy bonds.

jessica.beard@dailymail.co.uk