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Steve Webb: A perfect storm for DB transfer complaints

Complaints about DB transfers are currently low but claims management firms and a stockmarket downturn could create choppy conditions for advisers.

The national press has come to a pretty unanimous conclusion that defined benefit to defined contribution pension transfers will be the next mis-selling scandal.

Although the Financial Ombudsman reports low levels of complaints about transfers, how likely is it that there will be a wave of complaints and how successful are they likely to be?

A strong stock market and the fact that many people have only just transferred is likely to mean that complaint volumes will be low.

But it is not hard to see a perfect storm brewing which could change all that.

Rory Percival launches DB transfers guide

The first issue is that payment protection insurance claims farmers will have time on their hands when the PPI deadline runs out in August 2019. The average PPI claim was for less than £3,000, whereas the compensation available for a badly advised DB transfer could easily run into six figures. It is hard to imagine that the claims management industry won’t start to get a lot more interested in pensions.

The second problem will be a stock market downturn. Although a well-advised client will have understood that the value of their DC pot could go down as well as up, and should not have been advised to transfer if they cannot cope with some fluctuation in the value of their pot, this won’t stop a search for scapegoats if pots go down for a period.

The way in which compensation is calculated is a real issue.

If it is decided that someone was wrongly advised to transfer, FCA rules say that the compensation should try to put them back in the position they would have been if they had not transferred in the first place.

So in effect, this means replacing the value of the guaranteed DB benefits foregone, which can be a very expensive thing to do in a DC world.

The FCA says that the calculation should be based on the assumption that any compensation paid now would earn only half the expected rate of return on equities up to pension age.

This could generate some juicy compensation figures.

Regulator writes to 12 pension schemes over DB transfers

PI insurers are already starting to take fright (and flight) because of fears of a tidal wave of complaints, despite the fact that most advisers do a good job.

For example, I am hearing of advisers being told that any advice they have given on British Steel cases will either not be covered at all or will attract a separate premium or excess.

Another risk is of some firms phoenixing to try to walk away from the consequences of past advice. If this is to avoid being a feeding frenzy, the Financial Ombudsman will have a key role to play.

Advisers remain concerned that the FOS may be applying different standards to the FCA when it comes to assessing transfer complaints.

If this is not the case, then both the FOS and the FCA need to issue a joint statement which confirms their common standards for transfer advice.

If the FOS ends up applying its own approach then advisers will not know where they stand and it will be the claims management companies who will be popping the champagne corks.

Steve Webb is director of policy at Royal London


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Stating the obvious as always, pointless article!

  2. I completely agree with the comments made & it’s a “ticking time bomb” waiting to explode..
    The real sad side to this story is that there are clients whose best interests have been served by transfering out of a DB scheme but this will be lost in the scramble for compensation…..

    • Oh yes. I heard on the jungle telegraph that in just one city with a few dominant employers (Norwich, if you want to know) there is an extraordinary cluster of DB transfers. One city’s IFAs could sink the whole compensation system and possibly the IFA profession that needs ro rely on PI insurance forever.

      There’s still plenty of websites advertising “Due to recent market conditions, Final Salary Schemes have been offering some generous Cash Equivalent Transfer Values” in relation to that employers particular scheme when in fact they are not that great by comparison to the benefits (I know because I was in the scheme myself).

      Be very scared everyone.

  3. So true and so predictable. Indeed, predictable by advisers and regulators, both of whom ploughed on regardless. The former because there was a buck to be made – doesn’t apply to all but we’re all in the same bucket and will reap what gets poured in. The latter because they were hamstrung by political decisions that fortunately had a cast iron back up of being able to blame advisers when it went horribly wrong.

    And, of course, providers who just quietly nibble on the proceeds and keep quiet, they are, after all, just the middle-man…

  4. i think it would be wise to understand the rules before writing articles as it is completely misleading as their is very specific dates that the Financial Ombudsman has jurisdiction on this subject.

  5. The consumer has been given pension freedom, however the advisers have been made the means by which they can have the penny and the bun. No advice no transfer, this is political underhanded tactics at its best.

    I found it very interesting that 34 cases from Active Wealth have been upheld by the FOS so far, but 17 have not, SO, why were 17 not ? If you believed the media, PSC, politicians every case surely would have been upheld!

    IF flexible Draw Down is used in any form that could not be accommodated by the DB arrangement, there should be no grounds for complaint as the benefit of the transfer have been clearly demonstrated. How many have taken early retirement, PCLS no income (repaid debts, mortgages), lower income, higher income to State Pension then lowered the drawing from the Draw Down. If any of these methods have been utilised there is no complaint, even if they run out of funds, as it was the consumers choice to take this action and they benefited at that time.

    Further more, any compensation should be in the form of a life time income, an annuity, purchased with a spouses pension and the loss of return of fund on death, just like the scheme they are now stating they should not have left. Any thing short of this is immoral , as the consumer yet again has the best of both worlds and should not be given further funds to invest, which they are stating (now it suits them) they did not want or understand. They should also have to repay any tax advantges gained and any additional PCLS gained either refunded or reduced within the compensation.

    As for comparing DB Transfers with PPI, this for the vast majority of advisers working in this area is an insult. It was not forced on the client, hidden, certainly was in the vast majority of cases fully explained, including ALL the risks and not fully documented. Further more the vast majority are seeking advice as they want to transfer, they are not being forced to transfer. To state at a later date they did not understand, is an insult to anyones intelligence, what they are really saying is I wish I had not transferred as things have not worked out, I’ve over spent, retired to early, lived to long, did not believe the investments could fall that much and now want someone to blame.

    The political establishments with the help of the media are lining advisers up to pay for their tax grab and consumers remorse. As usual our industry is rolling over, fighting with each other and not fighting the real enemy. I really do despair at how advisers with no knowledge of individual circumstances fuel these flames, instead of thinking that maybe, what should happen is a refusal to provide any advice on DB transfers or transact and I do mean ANY DB advice, by ALL advisers until the regulator, FOS, Politicians and PI Insurers agree and set out clear statements and agreements. We know this will not happen as we don’t have one governing body. You would not see Solicitors or Accountants stand for this and their governing bodies would have made sure they were protected. Yet advisers carry on blaming each other instead of uniting, fighting to gain a fair playing field and getting the protection we all should have.

  6. Somebody else should stand up and be counted after their famous saying of
    “You can go out and buy a lambo”

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