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ombudsman news

issue 146

November 2018

pensions and pension transfers – what’s next?

The FCA has recently published new guidance on pension transfers, as well as a joint strategy with The Pensions Regulator. In light of these recent changes – and ongoing conversation between the financial advice sector, regulators and the ombudsman around transfer complaints – we invited key pensions commentators to share their views about the current landscape and what’s on the horizon.

Keith Richards

Image: Keith RichardsKeith is chief executive of the Personal Finance Society.





Caroline Mitchell

Image:Caroline MitchellCaroline is a lead ombudsman at the Financial Ombudsman Service.





Steve Webb

Image: Steve WebbSteve is director of policy at Royal London, and was Minister of State for Pensions between 2010 and 2015.




Edwin Schooling Latter

Image: Edwin Schooling LatterEdwin is the FCA’s acting markets and wholesale policy director.





Lesley Titcomb

Image:Lesley TitcombLesley is chief executive of The Pensions Regulator.






  • what’s your view of the current pensions landscape?
  • what do you see as the key issues facing the sector?
  • how can complaints be prevented?
  • where are things heading?

    what’s your view of the current pensions landscape?

    Keith Richards: To transfer, or not to transfer – that is the question. Between £20-30bn is transferred out of defined benefit (DB) pension schemes every year, so the personal finance profession has a key role to play in helping consumers answer this vital question to ensure they achieve the best outcome in retirement.

    Steve Webb: The pensions landscape continues to change rapidly. Automatic enrolment has brought nearly ten million new people into pension saving, while pension freedoms have given people a wide range of new choices about what to do with their money. As old-style DB pensions become rarer in the private sector, individuals are increasingly having to take more responsibility for their own retirement planning and face greater uncertainty about the future. They may also be more vulnerable to ever-inventive pension scammers. The constant tinkering with the tax relief regime does little to help stabilise the system.

    Edwin Schooling Latter: We have maintained our general advice to presume that transfers are not in the best interest of consumers. While transfers will be suitable for some, there is a risk of considerable consumer detriment in this area. We have therefore increasingly focused our attention on making sure that people who are considering transferring their money out of a DB pension pot get the right advice.

    Caroline Mitchell: Pensions can be very valuable assets – and the decisions people make can have a major impact on their retirement. The nature of our service means that when people contact us about their pension, they’re inevitably worried about it in some way. Often their relationship with their financial adviser or the provider of their pension plan has broken down and they want us to step in to help.

    Lesley Titcomb: The introduction of pension freedoms has been one of the most significant changes in decades. We welcome the positive impact for members of “defined contribution” (DC) schemes who no longer have to buy annuities, which have often been poor value.

    However, the pensions sector needs to ensure people are making decisions with their eyes open, with the right guidance and information and are aware of the threats posed by scammers.

    We are working with the FCA, Government and industry to address the risks to retirement savers getting good outcomes. An example is our recent publication of a joint pensions regulatory strategy with the FCA.

    what do you see as the key issues facing the sector?

    Keith Richards: With greater freedom comes greater complexity, and therefore greater risks for consumers and greater responsibility for professional advisers.

    To include DB schemes within pension reforms required the introduction of mandatory regulated financial advice to ensure that all consumers could access greater freedom of choice but equally ensure protection against poor or emotionally-driven decisions.

    While the regulatory starting position is that most members of DB pensions will be better off sticking with the guarantees, some schemes have been offering extremely attractive, enhanced transfer values, making the temptation to transfer even greater.

    But despite this regulatory starting position, advisers know that they cannot simply dismiss the possibility of a transfer out of hand, so as a profession, this is not a subject we can avoid socialising.

    Steve Webb: There is a lack of confidence and understanding about pensions. Gone are the days of fixed state pension ages or salary-related pensions about which members had to make few active choices. People will increasingly have multiple DC pensions, much more choice about how their money is invested, and what they do as they get closer to retirement. They also need to think about things like paying for care, possibly phasing retirement and perhaps using part of the value of their home to help fund their retirement. Access to good quality advice and guidance is more important than ever.

    Lesley Titcomb: Transfers from DB to DC schemes are unlikely to be in the best interests of many members. Therefore, we want those requesting a cash equivalent transfer value (CETV) to have the information they need to make an informed decision.

    We are working with the FCA and the Pension Advisory Service to support trustees and scheme members where there is uncertainty around the future of a DB scheme. This includes providing letters for trustees for members, alerting them to the risks of transferring and giving information. Since the summer we have sent letters to 24 trustees.

    We welcome legislation to ban cold calling but scammers are not going away. Our new ScamSmart campaign with the FCA urges the public to be on their guard when receiving unexpected offers about their pension.

    Caroline Mitchell: It’s important that people only transfer their money when it’s right for them – and that they’re aware of the risks of scams and dubious promises. It can be hard to keep a cool head when large sums of money are involved – and investments that promise stellar returns are understandably appealing. But making a hasty decision in response to a cold call is unlikely to end well. And as we’ve seen in examples that have made the news, people who’ve been told they need to make arrangements quickly may be especially vulnerable to being pressured into making unwise and usually irreversible decisions.

    how can complaints be prevented?

    Lesley Titcomb: Our guidance makes clear that trustees must check that members with a CETV of above £30,000 obtain appropriate independent advice before transferring to a DC scheme.

    Large DB scheme restructurings are rare but we and the industry need to be vigilant when it comes to risks from unscrupulous financial advisers and introducers. Earlier this year, we commissioned former chief executive of the Money Advice Service Caroline Rookes to carry out a review of the British Steel Pension Scheme’s member communications, after members were targeted. We expect her recommendations to inform our future guidance and support to trustees.  

    Keith Richards: It is important to acknowledge the pressure advisers are under when they give advice in this changing landscape. Frequently, consumers will already have been tempted by six-figure sums and will only be going to an adviser as a means to unlocking that fund. “Insistent clients” is just one area where advisers need to recognise and mitigate the risk of conflicts of interest to protect client interests and themselves.

    In response, the Personal Finance Society has established a Pensions Advice Taskforce (PAT).  I have been hugely encouraged by the number of senior experts who have wanted to take part, including representatives from regulated firms, consumer groups and public bodies. Together, we are developing a code of conduct for advisers that establishes good practice beyond the minimum legal and regulatory requirements, as well as a consumer-facing guide to help consumers understand what they can expect from a PAT member and how they can find one.

    Caroline Mitchell: The pension freedoms give scope for people to think differently about how they use their retirement pot. And so we’ve had to develop our own thinking about looking into complaints involving the freedoms.

    While people can have more control over their pension funds, financial advisers remain responsible for ensuring the advice they give is suitable. When we consider a complaint we’ll be asking: did the adviser really know their customer, and all their relevant circumstances? Did they understand what their customer was trying to achieve? And were there any better ways they could have helped that customer get what they want from their retirement, rather than accessing their pension funds?

    And whether or not a transfer goes ahead, our case studies show that financial advisers need to keep their customers up to date and manage expectations throughout the process.

    Steve Webb: Many complaints will relate to advice given years ago, especially in the case of DB transfers, so a flow of complaints seems inevitable, especially if/when the stock market turns down. It may be that advice firms should be proactively reviewing past cases to make sure that everything is in order and considering a conversation with clients before a complaint arises. More needs to be done to help consumers spot scammers, with a clampdown on unregulated ‘introducers’ almost certainly overdue. Similarly, a ban on cold calling would help to constrain one favourite tactic of the scammers.

    Edwin Schooling Latter: We’ve identified a number of issues within the DB transfer advice market – our October 2017 supervisory update found that less than half the advice we examined could be shown to be suitable. Our recent policy work has taken these findings into account.

    As this is such a complex area, advice on pension transfers must be provided or checked by an adviser with a specialist Pension Transfer Specialist (PTS) qualification.  To provide suitable pension transfer advice, advisers need to give full and proper consideration to the client’s circumstances and the various options. Among other things, they should bear in the mind the points set out in our recent policy document.

    Advisers need to make sure they gather enough information from their client. This includes establishing both the client’s needs and their objectives. Where these conflict, advisers should be able to show that these have been considered and prioritised appropriately.

    Advisers should ensure that they cover the advantages and disadvantages of existing schemes in a balanced way. For example, they should not overplaying the risks of sponsor insolvency as most DB pensions benefit from being covered by the Pension Protection Fund (PPF). The PPF will provide the majority of members with most of the benefits they have built up in their scheme.

    When assessing a transfer, the advice must take into account the proposed destination of the transfer funds if a transfer proceeds, including both the proposed scheme and the proposed investments in that scheme. This applies even in a two-adviser model, where one firm is providing investment advice and a different firm is providing the specialist pension transfer advice.

    where are things heading?

    Steve Webb: A big concern is a surge of complaints over DB to DC transfers. With the average PPI complaint yielding less than £3,000 compared with potential six-figure compensation for transfer complaints, the claims management industry will be licking its lips. Advisers are already facing hikes in premiums as professional indemnity insurers start to fear the worst. The Financial Ombudsman Service needs to urgently clarify whether it expects the same things of advisers as the FCA or whether it could still uphold a complaint even where an adviser has ticked all of the FCA’s boxes.

    Caroline Mitchell: We know that complaints about pension transfers are a big concern for the pensions industry as a whole – advisers, professional indemnity insurers and pension providers. We’ll continue to engage with financial businesses to talk about the issues involved – sharing what we’ve seen go wrong to help prevent problems arising. And we’ll continue to provide reassurance – and to demonstrate – that we’ll look into pensions complaints in light of the standards that applied at the time, and that we and the FCA are on the same page when it comes to those standards.

    Lesley Titcomb: DB consolidation is an opportunity to improve security for members, but we need to make sure members are protected by well-governed schemes, run by fit and proper people and backed by adequate capital.

    With the impact of pension freedoms and the industry working on a dashboard, we expect there to be greater focus on member engagement. TPR supports the recently launched the simplified DC pension statement and encourages trustees to use it.

    Edwin Schooling Latter: We have recently updated our rules on pension transfer advice to protect people saving for their retirement. We published two sets of new rules aimed at improving the advice people receive when considering transferring. This set out a number of changes.

    By October 2020, PTSs will be required to obtain the same qualification as an investment adviser alongside the existing PTS qualifications. We have issued guidance to clarify our expectations that advisers should explore clients’ attitudes to the general risks associated with a transfer, in addition to their attitude to investment risks. With effect from 1 October 2018, we replaced the analysis used to assess transfer values with a new version which will be easier for consumers to understand and will help better to frame their decisions.

    We have continued our supervisory work in this area and we plan to report back on the latest stage of our work later this year. The next phase of work will involve collecting and analysing data from all regulated firms that hold the pension transfer permission. This will allow us to build a detailed picture of the entire UK market. We have also sought views on whether to intervene in relation to charging structures. This could include banning contingent charging, which is when a fee for advice is only paid when a transfer goes ahead. As this is a complex area, we need to carry out further analysis of the issues drawing on our supervision work before deciding on next steps.

    Keith Richards: I am very proud of what the advice sector has achieved since the Retail Distribution Review (RDR). An independent audit by the FCA found that advisers give suitable advice on 93% of occasions. When you consider the number of complex and often subjective judgements that go into making a recommendation, that is an extraordinarily high figure.

    Working together, we can make the challenge of DB pensions transfers a success story for our profession, retain the trust that advisers have won from the public since the RDR and, most importantly, put consumers in the strongest possible position for their retirement years.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.