Written by Ian Gibson
Ever since March 2014, when George Osborne in his position as Chancellor, announced, his now famous pension reforms, there has been an ever-increasing clamour by pension scheme members to access the cash ‘tied up’ in their pension scheme. While the dash for cash has had a profound tax benefit for HM Treasury, the FCA has had concerns from the start that the very pensioners George Osborne was trying to help, would, without proper management, become the poorest and most disadvantaged in UK society.
This concern has resulted in the FCA bringing in a second line of defence, imposing over the last five years, ever tighter restrictions upon financial advisers looking to help their clients release pension funds. As a result, more and more firms with the specialist transfer permission have either decided to call it a day either voluntarily (in some cases simply ceasing trading) or coming to an ‘arrangement’ with the regulator to vary their permissions.
The issue is of course further complicated by HM Gov’s £30,000 threshold requirement, which dictates that the scheme member, no matter where in the world they may be living, must obtain UK regulated pension transfer advice before proceeding. This requirement applies to any member of a UK registered Defined Benefit (DB) pension scheme or Defined Contribution scheme with safeguarded benefits. Pension benefits with a guarantee and the advice requirement.
It is important to understand that while the law dictates a scheme member must seek advice there is no requirement on the member to follow the advice. This anomaly itself then creates a dilemma for both advisers and firms ‘should they, or should they not, accept a case where the scheme member is going against the regulated advice’. On this the FCA is silent, stating that it is up to the provider firm.
Given that the focus of the newly regulated claims management companies is moving rapidly away from PPI, there is little doubt that their new target markets are Pension Transfer Advisers; the Pension Providers who accepted transfers in; and more recently the regulated Investment manager/provider, even DFM, as the new source of recompense for their client base.
In all FOS referrals the Ombudsman would appear to be looking at not only was the advice correct, but what exactly happened after the advice was given and quite literally at all the parties involved in the transaction. Did the client follow advice, or go against the advice they received? If the advice was not to transfer and the client still wanted to go ahead, did the adviser take a fee for arranging the transaction despite the recommendation not to go ahead? What did the adviser do to try to stop the client taking independent action? What role did the provider play in permitting the transfer? Did the provider carry out sufficient due diligence on both the adviser and the proposed investment? Was the proposed investment asset/fund really suitable for a pension fund? Could the asset be readily valued, bought and sold? Was the asset deliberately targeted at an unsuitable group?
In many cases the original adviser no longer exists having exited the market, so next in line come the Pension Providers (usually SIPP Companies) and the asset/fund managers. The focus here is whether adequate due diligence was carried out on the investment funds not just by the pension provider but also by the fund provider. If the fund provider had a different target market in mind, what protection had they built in to prevent an unsuitable recommendation/use of their investment?
PI Insurers are increasingly keen to distance themselves from claims in this area. Firms without appropriate procedures or where the extent of their potential exposure has been underestimated or overlooked in the past, could find themselves without this business and regulatory critical protection if the cover is invalidated through non-disclosure or if renewal terms are either not offered or are prohibitively expensive.
While much of this article may well seem to relate to the retail sector with the ever increasing focus on the underlying investment, our recommendation would be that whether you are in the retail, or commercial market, all firms in the chain need to ensure that they have robust procedures to identify unsuitable investments/transactions.
