British Steel Jul 21 2021

Preparing for more regulatory action on pension transfers

  • Explain how FCA scrutiny around British Steel cases has grown
  • Identify indicators of unsuitable advice
  • What lessons have been learnt following the British Steel crisis
  • Explain how FCA scrutiny around British Steel cases has grown
  • Identify indicators of unsuitable advice
  • What lessons have been learnt following the British Steel crisis
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
Preparing for more regulatory action on pension transfers
Credit: Reuters/Scott Heppell

After all, there are some very real and potentially negative effects for the wider industry of this course of action, which will inevitably compound the already fraught situation of soaring costs for Professional Indemnity (PI) cover – if you can get it at all –  and the bill for Financial Services Compensation Scheme levies.

As firms continue to exit the market or go into liquidation, the financial burden falls on rest of the market to carry.

Nevertheless, compensating those who have lost out on tens of thousands in retirement income is the right thing to do.

So, while a mandated redress scheme feels unlikely, there’s still steps that firms can take to protect both their clients who lost out and themselves against further regulatory action. 

Red flags to look out for

While there’s a number of different indicators of unsuitable advice, there are a couple of key suitability problems that plague the wider DB pension transfer market and are a particular issue for BSPS cases. 

Firstly, as mentioned earlier, many of the complaints received by the Fos so far have focused around administrative failings. One of the most common is deficient files with information gaps, otherwise known as ‘Material Information Gaps’.

This is not necessarily an indicator of bad advice, but it is a warning sign and files that are missing key information warrant further investigation – regardless of how seemingly small that information gap may be. 

As an example, a high-quality DB transfer file should include evidence of the cost/benefit analysis.

After all, a transfer value can often look like a big sum when presented on its own, but we all know this is not usually the case when compared to the guaranteed benefits that the client would be giving up by transferring out a DB scheme.

A transfer can’t really be deemed suitable or in the client’s best interest if the adviser hasn’t done this comparative analysis, or hasn’t included any evidence that this process has been undertaken.

Rooting out and rectifying these administrative issues can avoid a lot of misunderstanding if and when the FCA asks to review your British Steel cases. 

A lack of evidence and justification for the transfer can also indicate that the adviser didn’t fully consider the alternative options available.

After all, it wasn’t until late 2017 that the Time to Choose consultation was launched by Tata Steel, by which time members had dealt with nearly a year of uncertainty over the future of their pensions.

The details of the new scheme (BSPS2) had yet to be clarified and the Pension Protection Fund had already got a bad reputation after trustees branded it a ‘poor outcome’.

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