Advisers in 'unhelpful situation' as political and regulatory tension creates pension transfer uncertainty

The continuing tension between the policy aims of pension freedoms and the regulatory position taken by the FCA has created an "uncertain environment for scheme members and their advisers", trade association PIMFA has warned.

Rozi Jones
28th April 2022
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"advisers increasingly find themselves in an unhelpful situation where their primary role is to talk individuals – unless they are extraordinarily wealthy or sick – out of making a decision"

Giving evidence to MPs on the House of Commons Public Accounts Committee, Tim Fassam, director of government relations and policy at PIMFA, argued that while advisers who were responsible for poor outcomes should take responsibility for their actions, "it is equally the case that there remains a tension between regulatory and government policy which is difficult for members and advisers to navigate".

He said that the pensions freedoms "inadvertently liberalised the defined benefit pension market" to allow access to flexibility. However, the FCA's regulatory assumption is that it is not in the member’s interest to transfer as they should not give up a guaranteed income in almost all circumstances.

It is, in PIMFA’s view, that the FCA does not apply the same assumptions to defined contribution (DC) pensions where there is little expectation that a saver will, or indeed should, seek to secure a guaranteed income through the purchase of an annuity.

PIMFA says that "this seeming inconsistency is primarily a function of the fact that most DB pension transfer values represent a poor deal for the member when compared to the cost of an equivalent annuity".

Tim added that: "It is concerning that one regulator, the FCA, would feel the transfer values overseen by another regulator, The Pensions Regulator (TPR), represents a major risk to consumers. The regulation that governs transfer values is minimal and mostly covered by guidance and best practice, with no requirement to assess if it is good value for the transferring member."

This, he said, creates a situation where financial advisers are "expected to talk members out of a decision they wish to make because the FCA values guaranteed incomes more than HM Treasury and believes the transfer values regulated by the TPR are such poor value they should almost never be accepted".

Tim concluded that the current situation is "not conducive to a well-functioning market" and leaves advisers who are still active in advising on DB transfers liable to future complaints even in instances where the advice given was, in their view, suitable.

Tim Fassam commented: “It is absolutely right that advisers who are responsible for the poor advice that they have given are required to compensate consumers who have received a poor outcome. However, it is equally the case that advisers increasingly find themselves in an unhelpful situation where their primary role is to talk individuals – unless they are extraordinarily wealthy or sick – out of making a decision, while charging for doing so and often without Professional Indemnity Insurance (PII) cover.

“Consumers who are due compensation for the poor outcome that they have received should receive it swiftly. But it should be the case that the drivers behind that outcome should also be examined in greater detail than they currently have been.

“At present the sole responsibility lies with the advisory profession – and we accept that some culpability is due in that regard – but the failure of the British Steel Pensions Scheme is a failure of regulation as well as conduct and we would encourage the Committee to consider this in their inquiry.”

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