Tony Byrne: FCA needs to lift DB transfer suspensions

Regulator has created a fiasco which is likely to lead to many complaints against it in years to come

Defined benefit pension schemes are in a sorry state right now, with large and ever increasing deficits, high profile failures and substantial numbers going into the Pension Protection Fund.

The FCA’s belated decision to start reviewing pension transfer specialist firms has only exacerbated the situation.

The introduction of pension freedoms in April 2015 has led to a huge demand for advice from final salary pension scheme members, which has resulted in a substantial increase in transfers into personal pensions.

Companies have also been offering historically high transfer values, which has significantly de-risked the decision to transfer them. Near record low gilt yields have contributed here.

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Advisers have quickly grasped the benefits to certain clients of theirs who are most suited to consider transferring their schemes into personal pensions.

Typically, the advantages include higher death benefits, no inheritance tax, inheritability by spouse, children and their descendants, very low critical yields and no early retirement penalties, alongside a lot more. The astute advisers who specialise in this area and support their advice with lifetime cash flow planning have been able to demonstrate these clear advantages to the right types of transfer clients.

And what is the right type of client? Well, as a generalisation, those with a medium or above attitude to investment risk, who are married and have children, are higher earners with many years of service in a DB pension scheme and at least high net worth, if not ultra high net worth, with a high capacity for loss are particularly suited to transfer.

The problem is that the FCA has taken more than two years since the introduction of pension freedoms to suddenly decide it does not like the way advisers are advising their clients on such transfers, which has led to most specialist firms being “voluntarily suspended”. Clearly, this means such firms have been compulsorily suspended either temporarily or permanently.

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As far as I can tell, though, few firms have actually had their permissions taken away. It seems that the advice to transfer is not being disputed on the whole. It is primarily the way the advice is being given that is not acceptable to the regulator.  So it is really about the administration.

Many firms have been suspended for months and there is no sign of when, if ever, they will be allowed to continue trading. This is very dangerous because some of these firms are likely to go out of business.  Even if they were to survive, their business reputations will have been irreparably damaged.

In the meantime, many clients will lose out if their transfer values fall or their employers go bust and the PPF does not bail out their schemes.

The FCA has decided it does not like final salary pension transfers and has created a fiasco which is likely to lead to many complaints against it in years to come. The sooner it lifts these “voluntary suspensions” the better.

Tony Byrne is managing director of Wealth and Tax Management

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I suspect there is a lot more to the suspensions than you may be aware of Tony.

    Either way, I have no problem with them and would like to see more scrutiny in this area of business, not just with the advice aspect but also the ongoing investment selection. After all, whether I advise on these or not, I will sure as hell be paying for any mistakes down the line!

  2. Totally agree, you could not make the current nightmare up. Having reduced advisers numbers to a 50 year low, with an estimated 4500 regulated pension specialists the regulator has placed the whole market in danger of collapse.

    When the industry is leased able to accommodate high demand we get pension freedoms. With the regulator two years after pension freedoms still offering unclear and non committed guidance. The FOS and FSCS issues dragging on and on, we seem to have a lot of reviews, reviews after reviews, but nothing seems to be achieved.

    The current uncertainty leading to PI insurance becoming doubtful for many pension specialists on renewal, due to the lack clarification from the regulator and future claims. Most pension specialists are already inundated with work, with little or no capacity to undertake further clients.

    One has to question, at what point does this become a priority? When there are no Pension Specialist left to transact and there is a national crisis?

    Well, this would appear to be but a 12 months away if things do not improve and very quickly.

    • Seriously?

      Do you suggest we let any Tom, Dick or Harry advise on DB pension transfers to avoid this ridiculous ‘national crisis’ you speak of. Let’s get the Banks in on it too – those are the majority of the advisers that have contributed to the ’50 year low’ you speak of.

      There needs to be more scrutiny and protection of DB transfers not less.

  3. Sorry Tony, but if you cant be bothered to get your ‘admin’ right when it come to giving up millions of quids worth of guaranteed income then you deserve suspending. I also suspect as Steve does that theres a bit more to it than meets the eye. However, Im guessing you will be retired before the mis-selling claims come around which may also be clouding your judgement?

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