Defined Benefit  

Will CMCs get stuck into DB transfers?

Will CMCs get stuck into DB transfers?

Going into 2022 there is a risk claims management companies could increasingly turn their attention to complaints surrounding defined benefit transfers and advice in this area.

Steve Webb, former pensions minister and partner at consultancy LCP, said CMCs could drive up complaints around DB transfers in 2022 as there was still a raft of historical issues people could potentially claim against.

Webb said: “The FCA’s repeated surveys have shown that DB transfer advice given in the past has all too often been either outright unsuitable or at best unclear. 

“Whilst standards of transfer advice have no doubt improved, there is still a sizeable ‘back book’ of interest to the claims management companies where past advice could be the subject of a compensation claim.”

Webb warned total compensation on DB transfer claims could easily reach six figure sums which suggested CMCs may find this an increasingly lucrative area to pursue.

Dominic James Murray, chief executive and independent financial adviser at Cameron James, shared Webb’s concerns.

He said while current quality levels of DB advice across the market were at an all-time high, historic mistakes were still being felt by the advice industry.

James Murray said: “Despite current levels of advice being far improved, we are unfortunately still paying for the misdemeanours of the past and a raft of unsuitable DB advice that was given before the FCA put a lid on this type of advice.

“We are just lucky we are not in the US, where litigation would be even worse.”

In order to try and stop CMCs profiting too much from clients, in November the Financial Conduct Authority confirmed it would go ahead with a proposed cap on CMC fees from March 2022.

The financial watchdog decided to introduce a cap on the fees a company could charge when processing a consumers’ claim against a certain provider - be that on behalf of a pension, investment or other financial service.

The fee cap starts at £420, and goes up to £10,000, depending on the amount of redress a customer is seeking.

Following a consultation period which began in January and ended in April this year, the regulator found the only way it could secure "an appropriate degree of protection against excessive charging" was by introducing a cap, saying disclosure remedies were "insufficient" to fix the problem.

Changes to the DB market

On a more positive note, interventions by the City watchdog have started to change clients behaviour when it comes to transferring out of a DB scheme.

James Murray said: “The current and rather arduous DB advice process leaves clients under no illusion that transferring their DB pension is indeed a significant decision and that they should start from the baseline that a transfer would not be suitable for them."

He added: “Some of my recent clients have been researching final salary transfers for one to two years before taking the plunge into a full advice process.