It was all about the ‘defences’ against poor pension access decisions this week, with our most read story of the week yesterday concerning consumers ‘gaming’ the ‘second line of defence’ system and details emerging on these pages on how providers are going about issuing warnings.
Here are the top five themes from this week’s news:
1. Advisers on pension freedom front line.
When the freedoms were originally mooted, some advisers warned that the government were opening up a major can of worms - and how right they were.
Yesterday (1 May) FTAdviser revealed how a number of advisers have been asked to sign documents confirming that advice has been given when none has occurred, so that members can persuade providers to transfer defined benefit pots without having to pay for full advice.
I doubt any regulated adviser would oblige, but following publication a number of other issues came to light in a lively forum debate.
Advisers are concerned that clients could lie to providers by stating they have taken advice when they haven’t and, if evidence is needed, that they will produce faked letters. After all, advisers details are readily available on the financial services register.
A FTAdviser reader said his client was recently advised by his bank manager to get the start up money for a business by cashing in his pension. When the adviser told him he could not help him, he went to the provider and said he had taken advice - seemingly without even needing a letter.
Last week we reported providers do not need to know what the advice was, they just need to know that it was taken. But it may be that in time providers need to start doing more formal checks to ensure the advice was actually genuine.
Oh, and while we’re on one can of worms FTAdviser also revealed this week that advisers will not be spared the ‘second line of defence’ from providers despite the fact they can process business unencumbered on behalf of hundreds of clients.
2. Huge hike in pension FSCS levies.
We were all taken by surprise this week by the Financial Services Compensation Scheme levy, which was hiked for pension advisers by a whopping 75 per cent from the forecast in January and will now be three times last year’s bill.
FSCS boss Mark Neale could not rule out further compensation costs associated with the self-invested pension-wrapped unregulated investments at the root of the problem, which means even it could surpass the £100m cap for the sub-class and leave other sectors picking up a bill.
Something must be done - the questions is what?
Speaking to FTAdviser, Chris Hannant, director general of the Association of Professional Financial Advisers, said that the source of the problem needs to be tackled, and the FCA should be using its product intervention powers to intervene.
Advisers cited a range of options, from hiving off advisers that process unregulated investment business into a separate FSCS category to spare others, to more general issues such as strengthening PI insurance was in place and always claimed.