If the underlying problem wasn’t so serious, it was perhaps appropriate that a subject that has occupied intermediaries, providers and regulators all year should descend into pantomime in December.
The swell of defined benefit (DB) pension transfers taking place across the country may not constitute a tragedy, but it has certainly reached a farcical phase.
A year-on-year comparison is instructive: on 21 December 2016, the Work and Pensions Committee was publishing its recommendation for changes to the DB pensions framework.
A year later, on 19 December, it was publishing a letter from Celtic Wealth, in which the introducer firm insisted it had provided Tata Steel employees with sausage and chips, not chicken and chips.
Those steelworkers have become the face of the DB transfer saga. Questions over the advice they have received about their pensions (see page 8) have shifted the story from the trade press to the national pages and giving new urgency to the debate over transfer practices.
Plenty of transfer advice given to steelworkers in Port Talbot and elsewhere will prove to be appropriate. But it seems clear that there are, at the very least, multiple examples of the opposite: savers being moved into unfavourable arrangements with high exit fees without fully realising what they have signed up for.
That has meant another hit to the advice industry’s reputation, notwithstanding the admirable pro bono efforts of Operation Chive, which offered a series of financial surgeries to affected workers.
The blame has already spread far and wide. Trustees have come under fire for not adequately informing scheme members, and the FCA has been the target of Labour MP Frank Field’s ire for failing to act quickly enough.
The watchdog is an obvious focal point in these situations, but its options are limited. A pre-emptive move such as banning contingent charging would appear to contradict its philosophy of not regulating on price.
Changing that would likely cause many more problems for advisers. The truth is that the regulator’s remit means it must take a reactive stance, and in cases such as British Steel, that’s akin to trying to plug multiple leaks at once with limited resources.
One thing the FCA should do as a matter of urgency is improve the scope of its data gathering – whether that be in relation to the register or simply statistics on transfers.
But confronting the broader problem may well require legislation, rather than regulation. As the industry has found to its annoyance with the proposed ban on pensions cold calling, these things tend to take time.
The irony, of course, is that no due process, consultative measures or the like applied to the pension freedoms, introduced as a grandstanding measure during George Osborne’s 2014 Budget.
We are still living with the consequences of that overhaul. The problem with a hands-off approach is that sometimes the autopilot malfunctions.
The freedoms alone are not responsible for the surge in transfers – soaring transfer values, driven by record low interest rates, have proven the initial catalyst.
But in cases such as British Steel, combining the reforms’ flexibility with a mass of employees forced to make fast, yet hugely consequential, choices about their life savings is a recipe for disaster.
It’s time to consider stronger controls to prevent firms playing on workers’ fears over the security of their pension.
These measures should be introduced at source – even if that means altering the reach of the 2015 reforms. Otherwise a handful of unscrupulous advisers will retain their ability to tar the industry’s reputation for years to come.
