View more on these topics

Steve Webb: Providers should not block DB transfers

Pensions minister Steve Webb says providers should not block transfers from defined benefit schemes even if an adviser has not recommended the move.

Last week, Money Marketing revealed how some providers would only accept transfers from members with DB pensions if an adviser had given a positive recommendation. Providers’ reluctance to receive insistent customers could potentially block millions of people’s access to the new Budget freedoms.

But speaking to Money Marketing, Webb says: “We recognise that for many people staying in DB is the right thing to do but the reason we haven’t banned it is because ultimately we want informed consumers to decide what’s best for them.

“Provided there has been genuine independent financial advice and it has been clearly explained to them what the consequences of their choices are, I don’t think personally it’s the job of the receiving scheme to override the preferences of the individual.”

The pensions minister also did not rule out creating a “backstop” for people who do not take up the offer of free guidance at retirement. Last week, FCA interim head of department for savings, investments and distribution Maggie Craig said the regulator is not working on a backstop.

Webb says: “We are thinking about it. We are very clear that we want to make it the norm that you have the guidance. We are absolutely focused on  maximising take-up of the guidance and enabling people to see how important it is. 

“Clearly we are going to be testing the take-up numbers and if, as we change our assumptions, it looks to us as if there will be a lot of people who don’t [take up the guidance], clearly we’ll have to do more to make sure those people are looked after.”

Earlier this month, Money Marketing revealed that just 2.5 per cent of savers had accepted the offer of guidance in a major Legal & General pilot of the scheme.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 33 comments at the moment, we would love to hear your opinion too.

  1. If we needed proof that the Government and this industry aren’t on the same page the above article provides it. Steve Webb to head up FCA. PMSL !!!

  2. I’m going to save this article and refer it to FOS when we all get fined in the future for allowing the DB transfer!

  3. But there are not enough AF3 qualified advisers to even meet let alone properly advise the likely flood of misguided souls, particularly those with small cetv’s. The advise process is difficult and long winded if it is to be compliant with regulatory requirements so if they can find an adviser these people will pay a high price for the advice that they ignore.

  4. This article proves two things:

    1: Mr Webb is obviously incompetent and has no understanding of pension schemes!

    2: If you wait long enough in financial services governments are always doomed to repeat the mistakes of the past e.g. pension miss-selling of the 80s when thousands of people were persuaded to opt out of their occupational pension schemes. Does anybody remember the breaking the occupational pension scheme chains advert!

    This time around however I hope that the government pick up the tab, as comments like this are totally responsible. I for one will be very interested to see where Mr. Webb ends up after his time in politics, I suspect it will be for a firm that has a large pension shortfall on its balance sheet.

    Can Mr Webb reminders again why transfers from government pension schemes are banned at present?

  5. Last time a Government promoted pension freedom and moving from DB to PPP we ended up with the Pension Transfer debacle.

    Webb, you should recognise when you are out of your depth and shut your trap!

  6. Even if we wanted the monstrous advice liability of moving DB funds around our PI insurers would have a heart attack. This man has no idea what he is doing.

  7. Its strange that DB schemes are always perceived to be Heaven Sent, whereas annuities are deemed to be the Devils Incarnate.

    It seems to me that there is very little difference between the 2 vehicles once an individual gets to retirement age. However, there is a real reluctance to facilitate transfers out of DB, but also a growing trend to recommend Drawdown over annuities.

    The issue over DB transfers is value for money. With annuity rates so low, they are perceived to be poor value. If the drivers for low annuity rates are low interest rates and increasing longevity (as we are being told), then these factors should also serve to boost the transfer values from DB schemes (ie the value that the accrued DB benefits represent).

    However, we are not seeing this. In many cases, DB transfer values are simply abysmal, and any customer looking to transfer out of a DB scheme is either going to get ripped off, or prevented from benefiting from the Pension Freedoms proposed. On a similar vein, don’t get me started on some of the commutation factors being offered to members looking to take some tax free cash either, which are simply insulting.

    If DB transfer values truly represented the value of a member’s accrued benefit, there would not be an issue with transferring out of DB. Maybe this is the real issue the Pensions Regulator ought to be sorting.

  8. At the risk of bringing down the wrath of more outraged advisers upon my head, I note that he is quoted as saying:

    “Provided there has been genuine independent financial advice and it has been clearly explained to them what the consequences of their choices are, I don’t think personally it’s the job of the receiving scheme to override the preferences of the individual.”

    This seems to be broadly OK to me. Peter Herd reminds us of those stupid ads and the feeding frenzy of Pension Transfers and opt outs that they encouraged, nearly all without properly considered advice and warnings. At the time, I was working for a Life Office that was heavily recommended by IFAs for this business, but that was many years ago.

    Today, there would be very few DB transfers (but there will be some) which could possibly be justified, and I cannot believe that today, post RDR and commission, any Adviser would dare to, or be stupid enough to recommend an unsuitable transfer, but if an individual client is told by an adviser unequivocally that the transfer is not in his/her interest, and is likely to result in a loss of benefit, and furthermore, the client signs a clear statement of understanding to this effect, then who are we, or the receiving scheme , to say that, given that the regulations allow such a transfer to take place, to say that he/she should not do so?

    This is what Steve Webb is saying, and I don’t see how we can argue against it. It may well be the wrong this for the client to do, but we live in a free society, with all of the imperfections that brings.

    As for the question of Statutory schemes, as I suspect Peter knows, transfers out are not permitted due to the unfunded nature of the schemes and the consequent cost of funding any transfers away, but don’t expect a straight answer from Government on this.

  9. Those in charge of the education & health departments will be banging their heads against their desks. They can’t afford to pay their staff at the minute let alone fund a load of people leaving their pension schemes.

    The private sector is in the process of receiving a big wake up call with regards to the funding of its retirement with Autoenrolment, new pension freedoms etc. It is time the public sector faced the same wake up call.

  10. I agree that customers should be free to transfer out of their DB scheme if they want to. People should be free to make their own decisions, even if those decisions are stupid.

    I also believe that advisers should be free to refuse to serve clients who want to proceed against their advice – and that insurers should be free to refuse business if they do not want to accept DB transfers without an adviser recommendation to shield them from liability. In a free country a business should be free to refuse service to whoever it chooses, for whatever reason, bar aggressive racial discrimination and the like.

    If Mr Insistent goes around a dozen IFAs and every single one says “Sorry, we won’t act for you on an execution-only / insistent client basis, we’re too afraid of the regulators” and then goes round a dozen pension providers and every single one says “Sorry, we won’t accept DB transfers without an adviser, we’re too afraid of the regulators”, it strikes me that the IFAs and the providers are not the problem here.

  11. This article will be used by unscrupulous offshore advisers who are still able to transfer DB pension schemes to QROPs with absolutely no qualifications to their name and total disregard to the interest of the client. And when we all though commission was finished, up to 12% commission is STILL being paid!

  12. Steve Webb has been working on this for 13 years and should be congratulated instead of having to read abusive stuff like Peter Herd has blogged. This is a great move by the minister and let’s hope he sees this through and we have a proper review of the whole sorry saga of forcing working people into ridiculous annuities.

  13. Peter you are so right on this one.
    Webby, breathtaking that you still talk such rubbish.
    No probs, he will be out of politics in about 6 months.

  14. Ken Dunkin,

    Like many advisers I have considerable problems in transferring from a guaranteed defined benefit scheme to an un-secured defined contribution scheme even with the new pension freedoms.

    When you take into consideration the risk factors involved in DC drawdown scenario compared with a DB scheme I think many advisers would be hard to justify the increase levels of risk.

    I would go even further to say that this type of action could potentially push many DB schemes into even greater capital deficit problems particularly if we have a rush of DB schemes having to raise capital to pay for transfers.

    How is that meant to be good for the remaining members of the pension scheme who choose not to transfer their pension rights.

    How many advisers will face possible complaints through the FOS after advice rules change in the future and the FOS retrospectively inspect files based on new rules, and the Minister in question has left office leaving the advisers to pick up the tab.

    These are legitimate concerns and if Mr Webb has been working on this for the last 13 years, I’m surprised that he hasn’t taken more notice of history, particularly in the adviser market connection with regards to pensions!

  15. There is a need for Advice and the option to transfer should always remain available even if it is only to benefit those with serious health issues that are trying to gain value for their family, not necessarily their spouse, but their children or parents.

    At present the Death Benefits available from DB schemes are questionable and the concept of cross subsidy of other members may not sit well with many DB members if they understood it. They may decide that they are prepared to bare risk to ensure the potential for their children to receive “something” rather then 100% of nothing.

    Steve Webb quite correctly does not want to close that door.

    I would suggest in the spirit of the true freedom of choice that “Nest” are encouraged to offer a product for “execution only” transfers to allow people to take control of their money without having to pay fees. I personally think it would be fraught with all sorts of risk for the individuals but I do not presume to be my brothers keeper.

    Knowing the world we live in today I would not be surprised if in a few years time advisers are sued by relatives of recently deceased DB scheme members because they were not advised to transfer out into DC schemes !

  16. Peter – Currently, many DB scheme trustees will welcome applications to transfer out – it gets rid of the liability – hence the rash of ‘enhanced’ transfers and bribes which we have seen in recent times.

    Whether the transfer values represent a full and fair valuation of the liability is another matter. Again though, provided all of the pitfalls, problems and disadvantages are made absolutely clear, in simple language, and the client acknowledges his/her understanding, and what they may or will be giving up, then why should they not be able to do so?

    I’m not saying I would be prepared to recommend such a course, but I question whether it is correct for me to prevent it, although of course, I also have rights as an IFA, including the right to refuse to act.

    As for the unscrupulous offshore ‘Advisers’ mentioned by Charles B, as we know they have been ‘liberating’ pension money for years now, in contravention of the current rules, and mostly at great cost to those who fall for their sales message. For those who still wish to transfer out of a DB scheme, a regulated mainstream solution has to be better.

  17. David Bettley

    I can understand the serious health issues part of your comment and that is an interesting issue but would have to compare with dependents pension which is index linked and lump sum death benefit.

    I can see your point though.

  18. The relative ease which offshore advisers are able to transfer DB schemes and invest funds through portfolio bonds and unregulated funds is in such stark contrast to the way advisers onshore advise. The worrying factor is how the offshore advisors are able obtain release forms, have these signed by the client, with no TVAS report and no disclosure of commission (yes they still earn commission). In addition, so called professional Trustees, turn a blind eye to the entire process, as uniquely, Trustees to these QROPS schemes are generally appointed by the so called Investment Advisors. What this means is that Trustees accept the appointment and negate the need of the fundamental duty of a Trustee, duty of care to the client, i.e. they agree for non qualified advisers to act and control all the investments.

    I am yet to find one client who is better off from an investment / retirement income by transferring a DB to a non guaranteed fund, in the offshore market.

    So when I read about a Government Minister suggesting that an insistent client should have the power to instruct a transfer, I consider the concept the same as a patient being able to obtain Prescription Only medication without a prescription – sheer lunacy…

  19. As the victim of an IFA who recommended transfer from a DB scheme into unregulated products, I strongly contend that ordinary people without specialist knowledge should be given maximum protection. Transfers should not be accepted unless the potential client has certificated specialist legal advice. My pension is now less than a third of what it would have been had I not taken his very expensive advice. But then I thought that a guy qualified as a ‘Certified Financial Planner’ could be trusted.

    He is still plying his trade in Cheshire, by the way.

  20. Here’s an actual case. Male age 65 already suffered a stroke, spouse 57, in good health. OP scheme £53,000 tax-free cash, £7,900 pa inflation linked capped at 3.0% max. Transfer value £252,000. Assume FAD rules and 3.0% pa inflation and no investment growth. After19 years the amount received from OP (including tfc) matches what is left of TV after taking comparable income (assuming phased drawdown, ie income includes tfc). It would take 24 years for TV to run out. If investment growth matches inflation (including investment growth added to tfc with OP) it takes 26 years for OP income to match drawdown (that is, increased value of OP lump sum matches what is left of TV). If investment growth is 2.0% above inflation, then after 37 years the increased value of the OP lump sum matches what is left of the TV after comparable income has been drawn from the TV. These are the sorts of calculations that need to be done, and the results placed before both client and spouse. This Excel calculator I have developed can also feed in comparisons if the spouse pension kicks in after any number of years.

  21. Karen White, have you gone down the misselling route?

  22. Karen White is a man, a comment on 29 May this year reveals this to be the case.
    I am who I say I am, I wish others could be honest and not pretend to be something or someone they are quite obviously not.

  23. @Paul Woolley. Perhaps he is sitting at Karen’s computer.

  24. Ken , using someone else’s name to post is not trivial and funny.

  25. We don’t know until he explains why he uses the name “Karen”. We should not rush to judgement.

  26. No explanation so far Ken, its been many months now.
    I think it may be an agitator or similar to stimulate more replies.

  27. @ Karen White

    Having read all of your comments you seem to have been blighted by pretty much all of the things that have one wrong in the financial services sector in recent years.

    Either you are incredibly unlucky (if so you have my sympathy) or you have an axe to grind and are telling fibs (which is more likely).

    If you are telling fibs I would ask that you please stop and go away.

  28. If this ‘Karen White’ has a genuine complaint surely ‘she’ would have gone to the FOS if incorrect advice had been given by a regulated adviser?

  29. Come on Karen, show yourself, whoever or whatever you are, we know you’re listening.

    To quote a Monty Python sketch – Get it out in the open, I know I have!

  30. Quote: “We don’t know until he explains why he uses the name “Karen””

    Armenian mother? (It’s a boy’s name over there)

  31. PERHAPS A WHITE ARMENIAN !

  32. Gerry, the whole thread is like a Monty Python sketch.

  33. I wonder if it is better we get back to the subject and just ignore her/him or even it 🙂

Leave a comment