Fallout from the scandal of defined benefit (DB) transfers from the British Steel Pension Scheme (BSPS) has prompted pension trustees to appoint independent financial advisers to help their members.
Speaking at the Pensions Management Institute (PMI) conference yesterday (19 April) in London, Jonathan Watts-Lay, director of Wealth at Work, said more and more pension schemes plan to appoint financial advisers available to help members considering a pension transfer.
He said: “The process isn't identical for all [members], some of them will have a mix of guidance and advice, some will just go straight to advice. Who pays for what might be different from scheme to scheme.
“The key thing that has changed is that risk is now on the other side, especially after what happened with British Steel.
“When you stand back from that you ask if it is better that the trustees don't put any process in place and just leave everyone to do what they are going to do, or is it better to do due diligence, and to put a process in place.
“Clearly, recent history will tell us that the latter is going to be the way to go.”
Since March 2017 until February 2018, BSPS trustees processed 2,600 pension transfers equating to a total value of £1.1bn.
FTAdviser reported in November that several steelworkers appeared to be transferring out their pensions after being lured by cheap deals by unregulated introducer firm Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth.
Several financial advice firms have stopped providing DB transfer services after intervention from the Financial Conduct Authority (FCA).
Around 130,000 steelworkers had to choose by 22 December 2017 it they wanted to move their DB pension pots to a new scheme being created, BSPS II, or stay in the current fund, set to be moved into the Pension Protection Fund.
From this total, about 43,000 are deferred, which means transferring out of their pension and giving up the associated guarantees was also an option for them.
However Abigail Currie, consulting actuary and liability management specialist at Willis Towers Watson, who was also speaking at the event, said trustees were usually worried about being made responsible for the financial advice given to members, which was one of the reasons schemes choose not to appoint an adviser.
However, the legal standard currently is that “going through the right due diligence process is the right thing for trustees to be doing, and actually through the discharge notices you can be very clear on what the responsibilities are, and are not, in relation to the appointed financial adviser”, Ms Currie said.
She added: “Trustees can be quite clear in their communication to members when they sign accepting the transfer that the trustees are in no way responsible for that financial advice.
“That was a really concern initially, it is still a concern for a few trustees, but it is diminishing over time.”
Ms Currie argued that it is best for pension schemes to appoint a single IFA instead of a panel of different professionals.
She said that a panel can be more problematic from a members’ perspective, since it might create some doubts on who to choose.
Also, appointing a group of advisers “doesn't necessarily create the same economies and efficiencies from the pension scheme's perspective because you got more financial advisers to train,” she concluded.
According to Paul Gibson, managing director of Granite Financial Planning, "considering transferring out of a final salary pension scheme is a huge complex issue for people".
He said: "Any professional assistance that can be offered to members must be welcome. If trustees perform proper due diligence on their selected IFA partner I see this as a positive move.
"The IFA in my view must offer cashflow planning as an integral part of their advice process.”
maria.espadinha@ft.com
