A discussion paper from Royal London and Eversheds Sutherland, published today (December 4), looked at the different ways trustees could engage with advisers to help their members access quality advice when considering a DB transfer.
The paper stated that trustees continued to face a dilemma over how engaged they should be in ensuring that members get the right advice on whether or not to transfer.
Although the analysis did not advocate a single course of action to overcome this issue, it stressed to trustees that doing nothing was not a risk free option, giving the example of British Steel to highlight the reputational damage that can be inflicted when members are left to find their own source of advice.
According to the Financial Conduct Authority, between the introduction of pension freedoms in April 2015 and September 2018, more than 230,000 members of DM schemes received advice on whether to transfer their benefits, with an average transfer value of £350,000.
But trustees have shown reluctance to help their members access advice for fear that liability could fall back on the trustees if things go wrong.
The policy paper set out a roadmap of engagement by trustees ranging from minimal involvement, such as signposting members to third party guidance websites or adviser directories, all the way to a ‘gold standard’ of appointing an adviser for members to use while ensuring ongoing supervision of the performance of the adviser.
It also provided a list of questions for trustees to ask when deciding which adviser to use.
This included gathering information about the proportion of clients who the adviser routinely recommends to transfer, and the typical destination of transferred funds.
Steve Webb, director of policy at Royal London and former pensions minister, said despite the controversy surrounding DB transfers, it still remained a viable option for many individuals.
Mr Webb said: “There is much to be said for trustees helping members to access high quality, affordable financial advice to help them to decide if such a transfer is right for them.”
Francois Barker, partner and head of pensions at Eversheds Sutherland, said: “When it comes to trustees and pension transfers, there is no ‘risk-free’ response.
“Trustees who engage with the issue in a properly governed way may well be less exposed than those who do nothing at all.
“Whilst there is no one-size-fits-all solution to this dilemma, we hope that this guide will help trustees to judge the right level of involvement in supporting members who may be considering a transfer.”
Another example mentioned was Tesco, which has a closed its DB scheme with 350,000 members and has recently announced plans to appoint two IFA firms, with whom members can engage for a fixed fee to provide transfer advice.
The supermarket giant is then supplementing this with a separate contract for ongoing governance oversight of the performance of the firms, with the option of replacing one or both IFAs if they do not deliver ongoing value to members.
Ruston Smith, chair of the Tesco pension scheme, said: “In the last few years there have been some examples where groups of employees or members haven’t had the right outcomes from the independent financial advice they received.
“There are therefore real benefits of appointing an IFA panel to support members in getting the advice they need and to reduce or remove the likelihood of scams.
“Ongoing independent due diligence of the IFA firms that are appointed is clear best practice governance to make sure that they ‘remain’ appropriate and to protect and support members.”
amy.austin@ft.com
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