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Are scheme rules holding back pension transfer advice?

Michael Klimes examines if scheme rules hinder the work advisers do on transfers

Pension trustees are voicing increased concerns that scheme rules are stopping them signposting financial advice to members.

Trustees fear that angry members who believe they have had bad advice will take them to court, and that scheme rules are often written in such a way that they do not allow trustees to provide financial guidance or education to members.

They have also raised concerns over financial barriers to facilitating advice, as support must be paid for at the discretion of the employer, not the trustees.

Advisers remain split over whether trustees really are hamstrung over their ability to signpost planners, or whether there is more scope for them to help stop members making bad decisions by referring them on to IFAs.

Sorting the wheat from the chaff

One trustee at a large pension scheme tells Money Marketing: “IFA queries are taking up a tremendous amount of our time; enquiries from IFAs, mainly about transfers from defined benefit, accounted for over a quarter of calls to our admin helpline last quarter and we’ve had IFAs sending in questionnaires with up to 50 questions in them, which is enormously time-consuming for the team.

“So it would be better for the scheme and better for the members, too, if we could work with a firm of advisers who understood our scheme in detail.” However the same trustee explains it is hard to intervene when it comes to transfers.

They add: “It’s very difficult for trustees to be sure which are the good IFAs and we are concerned about the risks if we recommend a particular adviser to members. If the member is unhappy with the advice, we would feel morally responsible even if we were legally protected.

“There’s also the question of who pays. Most schemes’ trust deeds and rules say nothing about financial education or guidance, which means we would effectively be relying on the employer to pay. So even if trustees would like to help they often cannot.”

While Rowley Turton director Scott Gallacher empathises with trustees he argues they can do more to help people get advice.

He says: “I can understand that the trustees wouldn’t want to be blamed for members receiving bad advice from a recommended IFA, yet there is still enough scope for them to recommend members seek advice from an IFA service like Vouchedfor.

“With regards to the scheme rules, again I struggle to see why this would preclude them from arranging financial guidance from a third party like the Citizens Advice Bureau. If it was a genuine scheme rules issue then could they not amend the scheme rules to allow this? I don’t think they are holding advisers back as such.”

LEBC director of policy Kay Ingram helps schemes find advisers and is even more sceptical of these arguments made by trustees about barriers to advice, which were aired at an Association of Member Nominated Trustees conference last week.

Her firm has advised 25,000 members who transferred out in the last 12 months from occupational schemes.

It has a specific division of advisers which deals with the complex legislation and scheme benefits around transfers.

She says: “I don’t think trustees are constrained by the scheme’s trust and deed rules to provide financial education. We know that advice is out of reach for many people.

“Maybe some members have transferred out because they do not understand what they are losing, and they don’t feel that they own their pension.

“More communication and education about transfers is important. Employers and trustees should do more to educate members about transfers.”

More to fear

Arc Pensions Law partner Rosalind Connor believes advisers have more to fear from transfers going wrong than trustees do.

This is because members will ultimately make a claim against the adviser rather than the trustee.

She says: “The adviser’s only defence is either they did not know about a risk at the time of transfer so could not tell the client about it, or that they thought a risk was so unlikely to materialise they did not mention it. These are two difficult defences to make with hindsight.

“I can understand why financial advisers get scared [on transfers] as it is irreversible, unlike other financial decisions where you can recoup your losses somewhat.”

The most critical thing for employers and trustees to do is to remember how important it is that members understand the significance of their decision to transfer.

Connor adds: “Part of the point about a transfer out is that one person’s reasons for transferring out are different from another’s. This is why appointing an adviser can be a complicated process.

“If trustees are worried about signposting an adviser they could say ‘this is the adviser we have selected but you can choose your own here at the Unbiased website’.”

A more proactive stance from trustees on transfer advice seems to be emerging, according to AMNT co-chairman David Weeks. He says: “Some trustees are working with nominated IFAs to secure a favourable price for group advice across a whole scheme. The idea is that the IFA can offer favourable terms because of economies of scale.”



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  1. Sorry to the good trustee’s, but you’ve only got to look at the British Steel pension fiasco as an example.

    1.) Members given a choice which they simply don’t understand.
    2.) Documentation that outlines which option might be better based on broad guidelines, but with zero explanation as to “why”
    3.) A deadline of less than 3 months, for them to make a decision or make a nomination to transfer.
    4.) Ten’s of thousands of members affected needing advice, in a market where the Trustee’s already knew there were a shortage of decent routes to advice and somehow these people are supposed to make a decision in less than 3 months with no direction or help as to where they might get that advice.

    Then people wonder why the vultures descend. Which leaves me with 2 questions.
    1.) How on earth were the trustee’s this clueless about what was needed?
    2.) How on earth are the advisers giving the so called mass advice to members to transfer out still allowed to be operating in this industry? Why have these incompetent money grabbers not been banned for life before now?

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