It appears that the pension reforms are appearing to bed down now, three weeks in - but that doesn’t mean pensions have been out of the news. We’ve also had further developments on the Sesame saga and continuing uproar over regulatory fees.
These are the five key themes of the week.
1. Turning point for transfers cited.
Three pension liberation decisions came out this week, as the Pensions Ombudsman continues to work through cases that are building up a picture of how switch requests are expected to be treated.
In two separate decisions, Pensions Ombudsman Tony King ruled in favour of pension scheme operators Legal and General and Scottish Widows over complaints from one saver who transferred more than £52,000 into a scheme suspected of so-called pension ‘liberation’.
What was interesting is that Mr King hinted that the reason why he had not upheld the complaints was because regulation cannot be applied retrospectively. One commenter on our forum suggested advisers cut out and keep that passage of the story for future reference.
The decisions also cited guidance from the Pensions Regulator in February 2013, which “could be regarded as a point of change” in good industry practice.
Prior to the pension liberation decisions, many in the industry suspected that providers would lose swaths of complaints. While they are not, what is coming out of the woodwork is that providers are failing to carry out due diligence and that the right to transfer is paramount.
Indeed, in a third decision published this week Mr King upheld a complaint against Prudential, who refused to transfer a pension to a firm it suspected of pension liberation. In fact, Mr King said that Prudential’s “insinuation about pension liberation is entirely unsubstantiated”.
“Prudential have not provided any evidence in support primarily because there is none.”
2. Liabilities are forever.
FTAdviser sister publication Money Management revealed the extend of the liabilities that Friends Life were looking after in relation to Sesame.
The provider injected £20m of new share capital into Sesame Bankhall Group to cover potential liabilities, months before the network announced it was to close its investment advice arm.
Forms filed at Companies House show three separate transactions in December, February and March, of £10.3m, £6m and £3.7m respectively.
Friends Life said in its annual report in March that, “due to potential liabilities from advice-related claims, Sesame is reliant on the continued financial support of the group to be able to continue to trade.”
While Sesame’s decision to abandon investment advice will avoid new liabilities, the old liabilities will not be going away any time soon.
3. FCA fee uproar continues.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, told FTAdviser this week of his plans to tell the Treasury Select Committee in the next parliament the FCA is “out of control when it comes to costs” - and to make an election issue out of spiralling costs.
In an FTAdviser video interview, Mr Sinclair said an 8.5 per cent increase in regulatory fees cross the board at a time when inflation is running at 0 per cent seems a “little excessive”.
Meanwhile, in an open letter to the leaders of the UK’s political parties, Apfa chairman Lord Deben and Ami’s chairman Patrick Bunton, said the FCA’s decision to increase regulatory costs was “disproportionate”.
People currently need financial advice more than ever yet, as we all know, many cannot afford the cost of financial advice.
If the regulator wants to see innovative ways of tackling the ‘savings gap’, something has to give. Advisers cannot afford to build their businesses while paying these hefty fees.
4. Growing buy-to-let resentment.
Several articles were published on buy-to-let this week all indicating that there is more support for moves to level the playing field between investors and wannabe first-time buyers.
In his column, Tony Hazell wrote that buy-to-let subsidies are becoming indefensible.
“We now have a situation where the top rate of tax on a pension gain is 55 per cent, while the top rate on a property gain is 28 per cent.
“Those letting a property also receive reliefs to reduce the gain even before they use their CGT allowance.
“It is really no wonder that research by The Wriglesworth Consultancy suggests returns on buy-to-let easily outstripped other asset classes over the past 18 years.”
However, of all the parties only in its 84-page manifesto, the Green party pledged to reduce pressure on house prices by removing tax incentives, including the deduction of mortgage interest as an expense.
5. DB concerns continue to grow.
Defined benefit pension scheme transfers continue to occupy headlines, with warnings that valuations are going to be key to avoiding a future mis-selling scandal in the wake of pension freedoms.
The flexibility to allow members to move from defined benefit to defined contribution schemes could give rise to claims because of inconsistent valuations, it was claimed, with actuaries being urged to ensure this is not the case.
While we’re on DB, another story this week reported on the approach of providers to those seeking to transfer schemes in relation to the advice they have received.
Providers have warned that they are between a rock and a hard place regarding defined benefit transfer requests, as while they need to ensure the saver has taken regulated financial advice they are under no obligation to find out the nature of the advice.
That’s the nature of ‘freedom’, I guess.
donia.o’loughlin@ft.com
