There are a lot of things the previous government did not think about when it conjured up the concept of pensions freedom and choice. One of these, clearly, is how the new reality would play out for members of defined benefit schemes. In the same vein, presumably the powers that be did not give much thought as to how their actions would open the floodgates on the demand for DB transfer advice.
It has been left to advisers to deal with the fallout, trying to manage the constant stream of transfer requests while always having an eye to future liability.
Advisers are grappling with how best to serve clients in this highly charged environment. Should they devote time to training and qualifications to keep pension transfers in-house, or should they outsource to specialists? What due diligence should be carried out on the firms they are referring to?
The surge in DB transfer advice has not gone unnoticed by the FCA, and rumours are circling that the regulator is planning a thematic review in the not too distant future.
There have been a raft of high profile missives from the FCA of late concerning pension transfers. We have had some guidance on what good looks like, though this was followed by a warning notice relating to the suitability of 500 DB transfers worth £12.7m. Advice firm deVere has also been tasked with carrying out a past business review of its pension transfer advice.
At the moment, these reviews relate to historic issues. But the worry is as demand and business volumes grow, there is a risk we are only storing up more problems for the future.
The picture that is emerging is of a system under strain, with the potential for firms to take shortcuts as a result. The market is shifting, and as specialists pull up the drawbridge on new business, providers are only too happy to step in. Cynics suggest this is less about virtue and more about a targeted asset grab.
The lure of DB transfers is set to grow stronger among clients given the Government’s recent green paper on DB funding and the accompanying political and public scrutiny DB schemes are under right now.
Fundamentally, if the transfer market is not working, it would be better to establish this now, to highlight where reasons to transfer have been clearly evidenced and where firms are going wrong. Now is not the time for the FCA to be silent on this.