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FCA and FOS set for industry talks over pension transfers


The FCA and the Financial Ombudsman Service are preparing to enter talks with the industry over pension transfers amid concerns professional indemnity insurers are taking an overly cautious stance in the wake of the new freedoms.

The issue of transfer advice has been brought to the fore by Chancellor George Osborne’s pension freedoms reforms. Under rules set out by the Government, anyone with safeguarded benefits worth £30,000 or more must take regulated advice before transferring their pension pot.

Most advisers remain unwilling to process transfers following a negative recommendation, leading to frustration among savers wanting to access their cash.

The regulator and the FOS are preparing to hold discussions with the Financial Services Compensation Scheme, PI brokers and trade body the Association of Professional Compliance Consultants.

APCC chairman Kevin Parkinson says: “There will be a meeting to discuss the pension freedoms in the coming weeks.

“For PI brokers this is a very high risk market. On insistent clients, the regulator and the ombudsman are saying you can do it on an individual basis, but it is untried and untested because there has been no complaint to the FOS yet.

“We are in a grey area at the moment. Fraud has almost tripled in the first month since the freedoms were introduced so we need to keep this issue on the agenda.”

Threesixty managing director Phil young says PI insurers are failing to distinguish between good pension transfer advice and bad advice.

He says: “At present we think PI insurers have a binary view based on product rather than the quality of advice, and perceive pension transfer advice as very high risk regardless of the quality of the advice given.

“A big part of that perception is based on their belief that FOS treat complaints in that way and automatically find for the complainant in all transfer cases. Both FCA and FOS give us a much more sensible view, but we need their help to deliver that message direct to the insurers.

“The FCA have been very proactive on this already with a number of useful public statements on insistent clients.”

Threesixty wants to see a voluntary code of practice created for advisers who adhere to high standards.

Young says: “The code of practice would confirm they are committed to a full and thorough advice process, and distinguish them from those looking to take shortcuts.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Code of conduct is totally useless. Experience has shown that no matter how advisers try to do their best for clients, those who complain about advice when things go wrong, invariably win their case. Is it any wonder that PI insurers don’t want to touch this with a barge pole with advisers in general feeling the same.

  2. Maybe the “binary view” is because pension transfer advice is inevitably complex. Stop and think how much it costs the insurer to demonstrate that advice was good. Any complaint is going to be an expensive proposition.

  3. Douglas Baillie 30th July 2015 at 12:36 pm

    And if an adviser loses a FOS decision, then unlike the complainer who can appeal the decision, the advsier has no right in common law to appeal the final FOS decision. Judge, jury and executioner, all with total impunity.
    This is manifestly unfair.

  4. Plenty of advisers are giving transfer advice, and a fair number of those advisers are offering cheap, poor quality ‘rubber stamp’ advice, with PI insurance which won’t pay out and the firms won’t be around when claims come through in years to come. There’s currently more pension transfer advice being given than ever before. Ignoring the problem means higher FSCS levies in future.

  5. If we do not have clarity then we polarise the market between those that want to give quality advice and stick to their convictions, and those who are prepared to take a chance and pocket some easy money. I am not sure that the consumer will know which is which.

  6. The insistent client scenario frustrates me due to the angel of death… the FOS… hanging over the advice process standards. In the current marketplace, whereby capital can be accessed within the PP regime, the transfer from an occupational scheme to a personal pension is no longer simply a linear equation whereby benefits can be compared on a statistical basis. We now have the additional factor of the need for capital being assessed and challenged by the adviser as to its legitimacy as well as the impact considered on the client’s daily living and overall financial situation were they not able to access capital from their pension.

    As a result, my possibly naïve opinion… or challenge to the FOS if you may… is that an occupational pension transfer could (I highlight could… not should) be found to be suitable on the basis of the client’s need for capital taking priority over any loss in benefits from the OPS and any unrealistic critical yields. I may be dreaming but this would then take the grey area of an insistent client scenario out of the question. if an adviser, acting diligently, were happy to proceed under a client’s instruction against their advice as they felt the client understood the risks and that their need for capital was reasonable, then this could simply have been recommended to the client in first place considering all these factors resulting in a suitable outcome for the client.

    However, understanding where a need for capital could outweigh the loss of benefits is the key to it all and as FOS provide little or no guidance around this area then we will continue in limbo wondering whether insistent client processes will really be acceptable with FOS.

  7. So to summarise my point… having an insistent client process in place by definitions tells us that our process for assessing suitability is flawed.

  8. Special dispensation also needs to be made for clients that are single with children over the age of 21, the inability to bequeath to adult children within the company scheme makes a transfer a necessity for most of us in this position.

  9. Necessity??

  10. Two points: if a client has a pressing need for capital then due consideration should be given to borrowing it where possible. We had a recent client who wanted to access his DB pension early to obtain £30k cash (for perfectly legitimate and understandable reasons). We identified that transferring out would cost him over £35k in lifetime income versus remaining a member of the scheme and drawing benefits (he was in good health) whereas borrowing for 5 years, paying interest, and then repaying the capital from the higher TFC at normal retirement would cost about £5k. He ignored our advice and found another way of effecting the transfer.
    If you are in Martin Cooke’s position, then consider the option of providing the lump sum bequest via life assurance. If you are in good health it will usually be a cheaper way of providing the bequest rather than taking the transfer and reducing the amount of lifetime income you receive.

  11. To clarify, it’s safeguarded benefits valued at OVER £30,000 where pension transfer advice is mandatory, not £30,000 or over (the TPR guidance in this regard was incorrect) – a moot point perhaps, but an important distinction for anyone with exactly £30,000 of safeguarded benefits.

  12. Pension Transfer advice is high risk, and formally noted so by FCA. ‘Pension Freedoms’ have dramatically increased the complexities and risk of providing advice, which I’m sure will not be lost on PI insurers. It is not surprising that such advice is going to be harder to obtain.

    The other big issue is cost of advice, because this has to be realistic and commercially viable, but must include some uplift over non-transfer work to reflect the additional risk being run. Add to this mix the increase in employer’s considering PIE/ETV exercises and the potential risks of what might in years to come be retrospectively judged to be ‘mis-selling’, and you’ve got an increasing recipe for encouraging firms that currently provide pension transfer advice to pull out of the market.

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