Defined Benefit  

Pensions industry responds to regulatory delays and freezes

This concern is also voiced by Ricky Chan, chartered financial planner and director at IFS Wealth & Pensions. 

“Naturally this would mean a large fall in DB transfer cases. This could result in increased frustration to clients, particularly as some may have been needing access to their pensions early for cash flow or other purposes, especially in light of potential redundancies or loss of business,” he says. 

Transfer values 

One of the main reasons for the delay in transfer of schemes is to give trustees more time to calculate the cash equivalent transfer values amid fluctuating markets. 

A CETV is the cash value of an individual’s pension benefits. The figure is the total amount available to transfer to an alternative plan in exchange for forfeiting rights under the scheme.

Mr Chan says: “It gives [trustees] extra time to reconsider whether they’re happy to accept the investment risk involved, as many who have transferred recently would have seen falls in their pension fund.”

But Ms Cogher says: “Most trustees take actuarial advice and most of [the transfer values] were fixed before coronavirus. This means they won’t take account of market volatility; they were higher assets, it would reflect the adjustments.”

She adds: “They have the next three months to figure, but often trustees only meet every three months, so this could be further delayed until there is a bit of stability.”

However, Mr Chan highlights: “If CETVs are unchanged from before the market falls, investing now or phasing-in investments over the coming couple of months could be a good opportunity to buy into the markets at a relatively lower price, as the markets have fallen.”

Contingent charging 

The Financial Conduct Authority’s decision to delay the ban on contingent charging has also received a mixed response from the industry. 

Contingent charging is when companies charge more for advice to transfer than advice not to transfer, creating a bias to recommend a transfer. 

While Mr Tully supports the ban overall, he cautions that not all transfers will be against clients’ best interests in the current situation. 

“It is still likely we will see a ban on contingent charging, but later than originally envisaged.

“While it is right we have strong controls and scrutiny of transfers, we need to be careful not to demonise all transfers and those involved in them.”

Mr Tully adds: “Otherwise we run the risk of stopping people exercising control over their pension savings, and preventing some from achieving the best outcome.”

Mr Chan does not support the banning of contingent charging and highlights that the delay may actually mean less wealthy clients may still be able to access advice. 

“I’ve never been a fan of the regulator adding more red tape and micro-managing businesses, including how charges should be applied. I do think the delay could mean more modest clients are able to access DB transfer advice,” he adds.