Since our last news report on the mis-selling of SIPP pension investments in December 2017, there has been renewed and deepening criticism over the practices of pension and investment advice providers and their introducers. The spotlight is now placed on potentially unsuitable advice by IFA’s to defined benefit scheme members, on transfer of their pension savings out of these valuable schemes to much more risky investments.
Transfers out of defined benefit schemes have grown in recent years. This due to a number of factors e.g. employer failure, benefit changes and loss of faith in the employer, a more fluid employment market, pension freedoms announced in 2014 and third party pressure, including cold calling. This growth has been matched by a rise in complaints, particularly from those who were advised on transfer and believe they have lost valuable pension benefits.
A report was published by the Parliamentary Work and Pensions Select Committee on 7 February 2018. This heavily criticised the FCA and The Pensions Regulator and found that 124,000 members of the British Steel Pension Scheme (BSPS), had “been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called “introducers”.
While the report is specific to members of the BSPS, it sends a clear message that inadequate and unsuitable advice provided to defined benefit pension scheme members on considering whether to transfer out of their schemes is considered a serious and endemic problem. The Committee has called for action stating the authorities are “walking into another mis-selling scandal”. The head of the FCA in his reply, expresses that he does not agree with this sentiment.
In a matter of weeks, however, a number of IFAs have voluntarily returned their licences to provide defined benefit pension transfer advice to the FCA, and at least one of these IFAs is now in liquidation. Cold calling in respect of pensions is due to be banned and transferring schemes and IFAs potentially face greater regulation. In particular, there is a call for a ban on IFAs charging contingent fees i.e. where they get paid only if the client agrees to transfer out. Such future action, however, does not affect those consumers who have already suffered unsuitable advice.
Currently, transferring defined benefit members whose pension savings exceed £30,000 must consult an independent financial adviser (IFA) before transfer. However, it is now abundantly clear that this protection falls short because it has not ensured that the advice provided, and recommendations given to individuals are suitable. Indicators which may suggest the advice given is inadequate and / or unsuitable include:
• Reliance by IFA’s on introducers (cold callers, media, hard sales techniques);
• Advice being provided without the adviser obtaining full information from the transferring defined benefit scheme as to the benefits provided by that scheme (and any transferred in benefits);
• Advice being provided without information and scrutiny of the replacement benefits of the receiving scheme;
• advice without any comparison between the transferring and receiving scheme or a failure to inform clients about the loss of the safeguarded benefits offered by the defined benefit scheme and the extent to which the benefits offered by the recommended product may fall short of existing benefits;
• a failure by the adviser to take into account adequately the client’s circumstances and appetite for risk;
• contingent fee arrangements whereby advisers only get paid if a transfer is completed.
If you have transferred out of a defined benefit scheme and are concerned about the advice you have received or consider that at least one of the indicators above may have affected the advice you received or consider you have lost pension benefits, then you may have a valid claim for compensation against an IFA which can be pursued to the FOS or FSCS.
Claire Collinson Legal has lengthy experience in dealing with the FOS and FSCS and offers a range of different funding options including standard hourly rate charges, fixed fee arrangements (so you know exactly how much you pay at the outset) and alternatively, in suitable cases, no-win no-fee arrangements.