Ken Davy  

DB transfer disasters must be addressed

Ken Davy

Ken Davy

It is just over six years since the then chancellor, George Osborne, announced the pension freedoms in his Budget. 

Seemingly this bombshell was only dreamed up the previous weekend as a whiz idea to help win the next general election.

Very unusually for pensions legislation, it was not discussed in advance with either the opposition or pension specialists.

The previous week I attended a private dinner with the then pensions minister, Steve Webb, where he gave us no inkling of the impending change.

Just a few days later he was happily reinforcing Mr Osborne’s message, by saying the government did not mind if people blew their pension savings on a Lamborghini, as they could always fall back on the state pension.

For the government to take such an attitude to the issue of people’s standard of living in retirement was, in my view, bordering on the reckless.

Indeed, as chairman of SimplyBiz, I immediately and publicly warned the financial services sector that unless handled with the utmost care, the proposed legislation would end in tears.

This is a view I have continued to express in every speech and article I have written on this subject.

In 2015 I wrote that “one thing I could guarantee was that within the next five years there would be another pensions scandal”.

It is no surprise to see the Financial Conduct Authority is further increasing its investigation of defined benefit transfers.

I believe the sector is entitled to ask the FCA why has it taken so long to get to grips with this issue.

The dangers were blatantly obvious, as stories emerged on a daily basis of vast sums being withdrawn from pension funds.

It was almost as if the FCA were being encouraged to turn a blind eye to the issue of consumer detriment.

It was probably at least a couple of years before any significant warnings emerged; three years on the FCA is requesting more information, to enable them to ‘understand the shape of the DB market’.

Clearly, transfers from defined contribution schemes can be good for some clients and represent excellent advice, however, it is less common for that to be the case for DB transfers.

If the result of the FCA’s slow response is a wave of pension transfer claims on the Financial Services Compensation Scheme, it becomes yet another reason to address the urgent need for reforming its broken and discredited funding method.

Ken Davy is chairman of SimplyBiz Group