According to the FCA, between the introduction of pension freedoms in April 2015 and September 2018, over 230,000 members of Defined Benefit pension plans received advice on whether to transfer their benefits, with an average transfer value of £350,000.
In this context, pension plan trustees continue to face a dilemma over how engaged they should be in ensuring that members get the right advice on whether or not to transfer. On the one hand, there is nervousness about getting involved at all, lest liability fall back on the trustees if things go wrong. But on the other hand, scandals such as that around transfer advice to members of the British Steel Pension Scheme, and recent Pensions Ombudsman determinations requiring trustees to check where members are transferring to, demonstrate clearly that doing nothing is not risk free.
Not helping members to access high quality impartial advice can have reputational and consequences for trustees and employers, and devastating consequences for members.
A new analysis jointly produced by pensions lawyers at Eversheds Sutherland and mutual insurer Royal London, published today (4th December) seeks to provide guidance to trustees when wrestling with this issue. The report sets out a ‘roadmap’ of engagement by trustees ranging from minimal involvement, such as simply signposting members to third party guidance websites or adviser directories, all the way to a ‘gold standard’ of appointing nominated IFAs for members to use if they wish and ensuring ongoing supervision of the performance of those IFAs.
The report provides a case study of the initiative taken by the Tesco pension scheme which has announced plans to appoint two carefully selected IFA firms whom members can engage for a fixed fee to provide transfer advice if they wish. Tesco is then supplementing this with a separate contract for ongoing governance oversight of the performance of the IFA firms, with the option of replacing one or both of them if they do not deliver ongoing value to members.
The report also provides help for trustees in selecting an IFA firm, with a list of questions which trustees should ask of advice firms seeking to be appointed. This includes gathering information about early stage ‘triage’ processes to help ensure that those for whom a transfer is clearly unsuitable do not take matters further, information about the proportion of clients who the adviser routinely recommends to transfer, and questions about the typical destination of transferred funds.
In the new world, whilst the report does not advocate a single course of action, it does stress to trustees that ‘doing nothing’ is not a risk-free option.
Commenting, Steve Webb, Director of Policy at Royal London said:
"Despite all of the controversy around this issue, it remains the case that transferring out of a Defined Benefit pension will the right answer for some people in some circumstances. There is much to be said for trustees helping members to access high quality, affordable financial advice to help them to decide if such a transfer is right for them".
Francois Barker, Partner and Head of Pensions at Eversheds Sutherland said:
"When it comes to trustees and pension transfers, there is no ‘risk-free’ response. The British Steel case demonstrates the reputational damage which can be done when members are left to find their own sources of advice. Trustees who engage with the issue in a properly governed way may well be less exposed than those who do nothing at all. Whilst there is no one-size-fits-all solution to this dilemma, we hope that this guide will help trustees to judge the right level of involvement in supporting members who may be considering a transfer.”
Ruston Smith, Chair of the Tesco PLC Pension Scheme said:
“In the last few years there have been some examples where groups of employees or members haven’t had the right outcomes from the independent financial advice they received. There are therefore real benefits of appointing an IFA panel to support members in getting the advice they need and to reduce or remove the likelihood of scams. Ongoing independent due diligence of the IFA firms that are appointed is clear best practice governance to make sure that they ‘remain’ appropriate and to protect and support members.”
Notes to Editors
The full report: “Should I stay or should I go – A discussion paper on facilitating financial advice for pension plan members seeking to transfer out” is available on request or can be downloaded at www.royallondon.com/policy-papers and www.eversheds-sutherland.com/documents/services/pensions/es-rl-policy-paper.pdf
Eversheds Sutherland: Francois Barker, Partner and Head of Pensions - firstname.lastname@example.org - 0 20 7919 0675
Royal London: Steve Webb, Director of Policy – email@example.com – 07875 494184
Sophie Llewhelin, Senior PR Manager, Eversheds Sutherland – firstname.lastname@example.org – 0121 232 1842
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.