Back in the 90’s the transferring of occupational pensions to personal pensions created the Pension Review.
It is unbelievable that 20 years later we still had a cynical pension transfer machine quietly bubbling in the background. Although the FSA effectively outlawed the practice last month, the damage done is immense.
The FSA is to be applauded for intervening. More generally, the industry needs to take notice. The advice to transfer was more often than not given by authorised advisers.
The number of firms undertaking these transfers is small. However, they have shifted a significant amount of decent pensions.
We have seen suitability reports which tell the client that the critical yield is above an acceptable standard. Even in these circumstances, the adviser still proceeds.
Such advice is undefendable and wrong and would prove so at FOS, court or the FSCS.
Many of the smaller Sipp providers have built up a business on the back of these investors.
Sipps will say they are member directed. However, they must have management information to show where the inbound transfers come from and where they go.
The FSA have already required Sipp providers to hold extra capital for “non-mainstream” assets. Some Sipp providers have expanded entirely on this approach. Some wisely have kept away from it.
The problem is practical. If a pension account has an illiquid (or as worse case, bust investment) then the member is less likely to want to pay. This creates a whole raft of “zombie Sipp” accounts which are labour intensive and not profitable. This is not sustainable in the long run.
It is amazing how many people have transferred their own occupational pension scheme, opened a Sipp account and invested into an unregulated scheme. The artificial nature of these transactions is where the problems will come from.
We have seen occupational transfers where it is clear that an adviser has been involved, which has then been declared as execution-only.
Surely, a spike in “execution only” Sipps which then invest into the same unregulated investment as many others should cause concern. Particularly, when the time period for this activity is condensed.
The sad fact is that many of these transactions have had a blind eye turned to them as each constituent part could be acceptable. However, then you run them together, they are pre-planned with only one aim in mind.
Gareth Fatchett is director at Regulatory Legal Solicitors