There is little evidence of financial advisers suggesting anything other than transfers to members of the British Steel Pension Scheme (BSPS), pensions expert and founder of Pension Playpen Henry Tapper has warned.
Mr Tapper and Al Rush, principal at Rutland-based Echelon Wealthcare, spent the day yesterday (8 November) at Port Talbot in Wales speaking to defined benefit (DB) scheme members.
Around 130,000 individuals will have to choose to move their pension pots to a new plan being created, BSPS II, or stay in the current fund, which will be moved to the Pension Protection Fund (PPF).
In August, Tata Steel UK (TSUK) got the go-ahead to offload BSPS and create a new defined benefit fund.
As part of the deal, The Pension Regulator gave its formal approval to a regulated apportionment arrangement (RAA).
More than 7,000 members of the scheme have requested a transfer value quotation between April and September this year, with more than 700 requests totalling more than £200m being concluded or processed during that period.
The individuals that have met financial advisers to make a decision have “no benchmark for judging either the quality of the advice or its cost,” Mr Tapper said.
There was also “general confusion about value" of advice, implementation and ongoing servicing and about whether these professionals were “offering advice or simply outsourcing advice to third parties,” he added.
According to Mr Tapper, the cost of advice, transaction and ongoing service was generally expressed to the scheme members as a percentage of the transfer value.
This was typically 2 per cent of the cash equivalent transfer value (CETV) for implementation, and 1 per cent for ongoing advice (paid on top of product fees of 1 per cent).
The average transfer value of the members Mr Tapper and Mr Rush talked to was £350,000.
The BSPS members weren’t able to explain the basis of the adviser’s recommendation for the transfer, and the reason for this decision is that it was the cash from their pension that they wanted.
Mr Tapper said: “We did not see any evidence of cash-flow modelling by advisers.”
Most people had been recommended insured products, typically from Zurich, Prudential or Royal London, he added, as where their Tata Steel UK should end up.
He said: “We found little understanding of the risks of drawdown. We did not hear one mention of annuities.
“While people were generally aware about the PPF, BSPS and BSPS II, we found there was little awareness of the risks of what they were transferring to and considerable trust that the financial adviser would take care.”
According to Mr Tapper, the trustees’ suggestion of using Unbiased to look for financial advisers is not being heeded.
He said: “The market for advice is forming around availability of advisers not around suitability.
“We found a low level of understanding of cost and value and a confusion about where the advice was coming from.”
Mr Tapper warned that considering the sums involved, there is a “considerable transfer of value from member’s pension rights to the advisory community and on to pension providers”.
He said: “The concept of ‘independence’ is not high on the agenda and most advisers talked of advisers as gateways to getting their hands on their money.
“There was little awareness of the contracts that members were entering into with advisers or people’s rights to move away from advisers and cancel the advisory agreements they were signing.”
According to Alistair Cunningham, financial planning director at Surrey-based Wingate Financial Planning, “it is hugely concerning that a significant proportion of these employees will either make a decision on their gut, or by taking inadequate advice”.
He said: “A firm such as ours does not have any ability to offer advice, so we need to rely on the good faith of others.
“Whilst no guarantee, I would highlight to members that a chartered firm adheres to a higher level of qualifications and ethical standards.”
maria.espadinha@ft.com
