Advisers have hit back at the idea that trustees should work with preferred IFAs when it comes to retirement or a transfer request in order to prevent scams, saying this would rule out smaller firms.
In response to the government's consultation 'Pension scams: empowering trustees and protecting members consultation', which ended last week (June 10), a pension administrator has said trustees should work with preferred IFAs in order to prevent scams.
Girish Menezes, head of administration at Premier Pensions Management, said: “A trustee could suggest a preferred IFA at point of retirement or on a transfer request because a specialist adviser can provide quality education that can help the member understand whether they should be considering a transfer or not."
But Darren Cooke, chartered financial planner at Red Circle Financial Planning, said if trustees were to provide an IFA that would limit it to larger firms only as smaller firms would not be able to cope with the work.
“There are not many truly [independent] larger firms. The member may also have an existing relationship over many years with a trusted adviser so would they still be entitled to use that firm,” he said.
He said working with a preferred IFA would also require the trustees to do full due diligence on the firm and could leave them liable to a claim if the advice was later proven to be incorrect.
“I'm not sure many schemes would want to leave themselves open to that,” he said.
Tim Morris, IFA at Russell & Co Financial Advisers, agreed having a single preferred adviser for each trustee would not work.
He said: “A panel of advisers may be better. This works reasonably well for mortgage surveyors."
In March the Pension Ombudsman set out how trustees should work with advisers, noting there had been a reluctance among trustees to recommend financial advisers due to concerns about the scope of responsibilities and where the liability lies.
The ombudsman told scheme administrators to use IFAs covering the whole of the market and to carry out appropriate due diligence on them.
It told them to set out clearly to their members that the pension scheme administrator is just facilitating access to advice, and not recommending any particular course of action, that any legal relationship is solely between the member and the IFA, and that the pension scheme administrator is not responsible for the IFA’s advice.
Under the government's latest proposed rules trustees will get the power to prevent pension transfers if there is a risk the pension holder is being scammed.
Its proposals include a system of red and amber flags, warning trustees when pension holders wish to transfer their funds to another scheme which does not fulfil certain criteria, for example an employment link between the holder and the occupational scheme they wish to transfer to.
Morris welcomed the initiative. He said: “Stopping a transfer seems drastic and would cause all kinds of issues, yet I would not take that option off the table.”