Political and regulatory tension has created uncertainty over final salary pension transfers

27 April 2022

Political and regulatory tension has created uncertainty over final salary pension transfers

The continuing tension between the policy aims of pension freedoms and the regulatory position taken by the Financial Conduct Authority (FCA) has created an uncertain environment for scheme members and their advisers, PIMFA, the trade association for the wealth management, investment services and financial advice sector has warned today (27 April 2022).

Giving evidence to MPs on the House of Commons Public Accounts Committee, Tim Fassam, Director of Government Relations and Policy, argued that:

• While advisers who were responsible for poor outcomes should take responsibility for their actions, it is equally the case that there remains a tension between regulatory and government policy which is difficult for members and advisers to navigate.
• The pensions freedoms inadvertently liberalised the Defined benefit (DB) pension market to allow access to flexibility. However, the Financial Conduct Authority’s (FCA) regulatory assumption is that it is not in the member’s interest to transfer as they should not give up a guaranteed income in almost all circumstances.
• It is, in PIMFA’s view, that the FCA does not apply the same assumptions to Defined Contribution (DC) pensions where there is little expectation that a saver will, or indeed should, seek to secure a guaranteed income through the purchase of an annuity.
• It is PIMFA’s view that this seeming inconsistency is primarily a function of the fact that most DB pension transfer values represent a poor deal for the member when compared to the cost of an equivalent annuity.
• It is concerning that one regulator, the FCA, would feel the transfer values overseen by another regulator, The Pensions Regulator (TPR), represents a major risk to consumers. The regulation that governs transfer values is minimal and mostly covered by guidance and best practice, with no requirement to assess if it is good value for the transferring member.
• This creates a situation where financial advisers are expected to talk members out of a decision they wish to make because the FCA values guaranteed incomes more than HM Treasury and believes the transfer values regulated by the TPR are such poor value they should almost never be accepted.
• This is not conducive to a well-functioning market and leaves advisers who are still active in advising on DB transfers liable to future complaints even in instances where the advice given was, in their view, suitable.

Tim Fassam commented: “It is absolutely right that advisers who are responsible for the poor advice that they have given are required to compensate consumers who have received a poor outcome. However, it is equally the case that advisers increasingly find themselves in an unhelpful situation where their primary role is to talk individuals – unless they are extraordinarily wealthy or sick – out of making a decision, while charging for doing so and often without Professional Indemnity Insurance (PII) cover.

“Consumers who are due compensation for the poor outcome that they have received should receive it swiftly. But it should be the case that the drivers behind that outcome should also be examined in greater detail than they currently have been.

“At present the sole responsibility lies with the advisory profession – and we accept that some culpability is due in that regard – but the failure of the British Steel Pensions Scheme is a failure of regulation as well as conduct and we would encourage the Committee to consider this in their inquiry.”

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Notes for Editors

About PIMFA – the Personal Investment Management & Financial Advice Association

• PIMFA is the trade association for firms that provide wealth management, investment services and the investment and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.
• The sector currently looks after £1.65 trillion in private savings and investments and employs over 63,000 people.
• PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families to charities and pension funds, all the way to trusts and companies.  Associate members provide professional services to the PIMFA community.
• PIMFA  leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments. 
• PIMFA has made numerous recommendations to the FCA regarding the Future of Advice, Future of Supervision and the FSCS levy – read more.
• PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.
• Further information can be found at pimfa.co.uk

Contact

For further information on this release or other press matters please contact:

Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376 / +44 (0) 7843 903258

Sheena Gillett, PIMFA Communications & PR Director – sheenag@pimfa.co.uk, +44 (0)20 7011 9869 / +44 (0)7979 493225