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Topics: Hargreaves Lansdown| Tom McPhail| FSA
Nervous advisers are recommending clients stick with their existing pension arrangements, even where there is good reason to transfer, because of the FSA’s “heavy-handed” crackdown on pension switching.
A number of concerned IFAs say the regulator’s efforts to protect consumers from unsuitable pension switches have, in some cases, proved counter-productive.
A thematic review by the FSA in 2008 found almost one in six pension switches had been missold.
Follow-up work last year led to a £700,000 fine, plus an order to conduct a past business review, for RSM Tenon Financial Services, while ten other firms were asked to conduct legacy business assessments.
But a number of IFAs have told Professional Adviser, IFAonline's print title, the FSA’s “heavy-handed” approach has left them worried to process even the most justifiable switches.
David Curley, director at Spencer Hayes Financial Services, says: "What was pension planning is now retirement planning, and even that is moving quickly to 'flexible income in semi-retirement' planning.
"Products such as SIPPs permit so much more flexibility, but the FSA has not caught up with this fact. So they are jumping on advisers for pension switching even when there are legitimate reasons for the switch.
"Advisers will never be able to do the work for clients without fear of retribution."
Another south-east based IFA, who asked to remain anonymous, agreed “one million per cent” some advisers avoid valid pension switching for fear of being chased by the FSA.
“The regulator’s compliance crackdown has acted like a business prevention tool for IFAs,” he says. “If the switch is a simple process, you do it, but if it is not, because of compliance processes, you think ‘this is not worth it’.”
Tom McPhail, head of pensions policy research at Hargreaves Lansdown, says pension switching remains a “grey area”.
“It is always going to be difficult to pin this down,” he says. “But the FSA’s interest has focused advisers’ minds on pension switching, which is not necessarily a bad thing.”
Others maintain the FSA rules are fair. Mike Jones, of consumer site MyCompanyPension.co.uk, says churning is still a very real threat to clients today.
"A recent case I mediated on involved an IFA who transferred £50,000 from one pension provider to another for a 63-year-old who was two years away from drawing his pension.
"The policyholder was at his wits end when, 18 months later, he only had £26,000, such was the downturn in this particular fund."
An FSA spokesperson says: “We have given a lot of guidance recently on best practice for pension switches.
“As well as a ‘Dear compliance officer’ letter, 18 regional road shows, numerous enforcement cases and a thematic review, we have also published a suitability template that provides firms with a resource to assist them in this area.”
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Don't Mention the Pension
Pensions have never been more flexible and there has never been a time when a pension as a 'product', for very many people, is only one of many sources of of income in retirmeent (ISAs, bonds and property rental are just three other sources)but never has there been a time when the controls on advice have been so onerous. I can well believe IFAs are nervous about doing anything. Not only are compliance regualtions so detailed as to become self defeating but the process of giving advice is now as time consuming. Advising on the potential of switching pensions really has become like the Forth Bridge of financial services. By the time you have finished the process you need to start again as the work at outset has become out of date. Never has there been a time when "common sense and common decency" has been treated with such contempt from those with an axe to grind and a salary to justify.
Posted by: Jefroc
The process doesn't work
The problem is that 1 in 6 pension transfers appear to be poor advice and it looks like there are IFA's out there that bend their advice for the commission. One such 'transfer specialist' in Gateshead has recently been banned by the FSA and more than a half of their transfers were unfounded. So hurray the FSA then? Unfortunately, any talk of an FSA investigation brings up fears of a compensation freeby for cients, which is heavily bent in favour of whatever lies their Claims Management firms can come up with. The result is that Pension Transfers becomes the new leprosy and PI insurers and legitimate advisers try to avoid them. Hence leaving the public's pension hope in the hands of bankrupt with-profits funds of closed for business, pension providers of the past. I think the FSA needs to learn to be a bit more subtle.
Posted by: Mark Green
Pension Switching
I sincerly hope Mike Jones, of consumer site MyCompanyPension.co.uk, has been mis quoted when hes says "churning is still a very real threat to clients today" and is further quoted as saying "A recent case I mediated on involved an IFA who transferred £50,000 from one pension provider to another for a 63-year-old who was two years away from drawing his pension". "The policyholder was at his wits end when, 18 months later, he only had £26,000, such was the downturn in this particular fund." With respect Mike, that seems to me to be a fund selection issue which is very distinct from a legitimate pension Transfer or quote "Churn".
Posted by: Alan Parkinson
Pension Switching
I sincerly hope Mike Jones, of consumer site MyCompanyPension.co.uk, has been mis quoted when hes says "churning is still a very real threat to clients today" and is further quoted as saying "A recent case I mediated on involved an IFA who transferred £50,000 from one pension provider to another for a 63-year-old who was two years away from drawing his pension". "The policyholder was at his wits end when, 18 months later, he only had £26,000, such was the downturn in this particular fund." With respect Mike, that seems to me to be a fund selection issue which is very distinct from a legitimate pension Transfer or quote "Churn".
Posted by: Alan Parkinson
Good article
But we have a problem as Alan says there is a gap of knowledge moving on to platform and into a wrap is not the same as investing. Investing is a separate issue it is this that causes the most problems and needs the most work discussion and agreement.
Posted by: John whipple
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Pension switching
Advisers are dammed if they do and dammed if they dont. What happens in 10 years time when a client goes to retire and the result is not as good as if he had transferred. Who,s going to pay the compensation when the FSA decided it was not a good idea. Not the FSA I bet.
Posted by: terry